Reason Foundation - Policy Areashttp://www.reason.org/areas
info@reason.org (Reason Foundation)http://www.pjdoland.com/chai/?v=0.1Are Discount Rates and Funded Ratios Correlated?http://www.reason.org/blog/show/discount-rates-and-funded-ratios
<p>The Society of Actuaries recently published a <a href="https://www.soa.org/Research/Research-Projects/Pension/2016-us-pension-plan-discount-rate-comparison.aspx">study</a> looking at the relationship between the funded status of defined benefit retirement systems and the discount rates they used. The report focused on the biggest public and private defined benefit plans in the U.S. between 2009 and 2014, and concluded that there is no clear causal relationship between the unfunded liabilities of a plan and how the plan values its liabilities. However, public sector pension plans should not surmise from this finding that all is well with the discount rate practices they are using.</p>
<p>A primary finding from the Society of Actuaries report is that there is substantial variance in the discount rates used by defined benefit plans. The differences in discount rates were in part due to the different kinds of plans analyzed. In 2014 about 60% of private sector multiemployer (or so-called &ldquo;union plans&rdquo;) had discount rates between 7.5% and 7.99%, where as 75% of public sector plans used discount rates in that range. By contrast, private sector single-employer plans (which are also termed as &ldquo;non-union&rdquo; plans) almost never use a discount rate above 7.5%.</p>
<p>Public sector plans in particular were more likely to use high discount rates of 8% or greater &mdash; 11 of the 160 of the public plans analyzed by the report &mdash; and less likely to be using a 6% discount rate or lower. (Only three public plans were in this latter category: the Wisconsin Retirement System, Pennsylvania Municipal Retirement System, and Portland Fire and Police Disability Retirement Fund.)</p>
<p>The variance in discount rate approach reflects an ongoing regulatory dilemma for defined benefit plans in America. While all private sector defined benefit plans are subject to the Employee Retirement Income Security Act (known as <a href="http://www.nccmp.org/resources/pdfs/other/Summary%20of%20ERISA.pdf">ERISA</a>), only private single employer plans are actually required to use market-valued discount rates. Both public sector plans &mdash; governed by the Government Accounting Standards Board &mdash; and private sector multi-employer plans are allowed by their regulators to use the expected rate of return on assets as the discount rate.</p>
<p>Market-valued discount rates (using the risk of liabilities to measure the value of liabilities) tend to follow bond yields and are almost always going to be lower than a discount rate based on the asset allocation of a pension plan (using the risk of assets to measure the value of liabilities). Which of the two is appropriate for use by public sector plans in particular has been the subject of a <a href="http://reason.org/blog/show/report-challenges-standard-actuaria">recent actuary civil war</a> in which members of the Society of Actuaries are falling on the market-valuation side.</p>
<p>Unfortunately, the ability for public plans and private multi-employer plans to use rate of return assumptions as the discount rate for valuing accrued liabilities tends to create a perverse incentive to apply rates that artificially reduce the present value of promised pension benefits, thus understating the amount of recognized pension debt for a plan.</p>
<p>The conclusion of the study is that there is no statistical correlation linking plans with high discount rates to plans with low funded ratios, or vice versa. However, at the same time the Society of Actuaries study finds that the category of plans that currently use highest discount rates (public plans) have the lowest funded ratios. Unsurprisingly, the category that has the lowest discount rates (private single employer plans) enjoys the highest funded ratios, generally speaking.</p>
<p>A likely explanation for this phenomenon is that plans using high discount rates are probably also using other aggressive actuarial assumptions that have had a more proximate relationship to the growth of unfunded liabilities and decline of funded ratios. For example, with public plans we know that high discount rates generally mean high assumed rates of return, which in turn suggests an asset allocation that has trended away from safer, fixed income investments, and is thus more exposed to market volatility and investment return underperformance.&nbsp; Similarly, a plan that is willing to use a high discount rate may also be willing to use an aggressive payroll growth assumption or use an open amortization method.</p>
<p>Thus, while the Society of Actuaries report does not find a direct relationship between funding status and discount rate, that doesn&rsquo;t mean there isn&rsquo;t an observed indirect relationship.</p>
<p>Moreover, as public plans continue to age and the baby boomer generation adds more and more people to retirement member rosters, the undervaluing of those liabilities may very well start to <a href="http://reason.org/blog/show/baby-boomers-new-normal">wreak havoc on pension plan solvency</a>&nbsp;in a direct way. Just because there was no direct relationship from 2009 to 2014 does not mean there won&rsquo;t be a direct, causal relationship between high discount rates and low funded ratios in the future.</p>
<p>To read the full paper of SOA, go <a href="https://www.soa.org/Research/Research-Projects/Pension/2016-us-pension-plan-discount-rate-comparison.aspx">here</a>.</p>1014712@http://www.reason.orgTue, 22 Nov 2016 09:15:00 ESTanil.niraula@reason.org (Anil Niraula)Sasha Volokh on Antitrust Immunity for Regulatory Boards Dominated by Market Participantshttp://www.reason.org/blog/show/volokh-antitrust-immunity-regulator
<p>Sasha Volokh has a <a href="http://reason.org/news/show/antitrust-liability-regulatory-boar">new article on Reason.org</a> analyzing recent court cases defining the contours of antitrust immunity for market-participant-dominated regulatory boards. Here's an excerpt:</p>
<blockquote>If all raisin producers got together in a room and privately agreed to limit the quantity they produced in order to raise price, this cartel would be a per se violation of the Sherman Antitrust Act. The agreement not only would be unenforceable but also would carry significant civil and criminal penalties.<br /><br />But what if the state of California created a Raisin Control Board charged with imposing the same regime by statute&mdash;perhaps after lobbying by these same raisin producers? This might be worse than the private agreement. Private agreements often break down (to the benefit of consumers) because some of the producers cheat on the deal by producing more than the agreed-on quantity or undercutting the agreed-on price, or because new producers enter the market to take advantage of the high prices. But the statutory regime would be able to control these &ldquo;problems&rdquo; with the force of law, and would continue until repealed by the legislature&mdash;i.e., possibly forever.<br /><br />Nonetheless, in <em>Parker v. Brown</em> (1937), the Supreme Court held that the Sherman Act had nothing to say on the subject. The legislature that passed the Act in 1890 surely didn&rsquo;t mean to control states&rsquo; sovereign activity, even if it was anticompetitive; moreover, a due respect for federalism counseled against preempting state policy in this way. This was the genesis of &ldquo;state action&rdquo; immunity to federal antitrust law.</blockquote>
<p>Read the full article <a href="http://reason.org/news/show/antitrust-liability-regulatory-boar">here</a>. Volokh goes on to explain that the Texas Medical Board&mdash;which regulates the practice of medicine in Texas, tried to crack down on telehealth&mdash;the practice of doctors' seeing patients by phone or video consultation rather than face-to-face appointments. Yet the Texas Medical Board is dominated by practicing doctors, so this crackdown consisted of doctors' regulating their own competitors. Teladoc, a telehealth firm, argued that this was invalid under federal antitrust law, based on recent precedent from the U.S. Supreme Court on the antitrust liability of regulatory boards dominated by market participants. Volokh explains how Teladoc won, in part thanks to an amicus brief that he wrote for himself and 54 other antitrust and competition policy scholars.</p>
<p>Volokh's other legal analyses written for Reason Foundation are <a href="http://reason.org/authors/show/alexander-volokh">available here</a>.</p>1014703@http://www.reason.orgTue, 08 Nov 2016 10:37:00 ESTleonard.gilroy@reason.org (Leonard Gilroy)Who Regulates the Regulators?http://www.reason.org/news/show/antitrust-liability-regulatory-boar
<p>If all raisin producers got together in a room and privately agreed to limit the quantity they produced in order to raise price, this cartel would be a per se violation of the Sherman Antitrust Act. The agreement not only would be unenforceable but also would carry significant civil and criminal penalties.</p>
<p>But what if the state of California created a Raisin Control Board charged with imposing the same regime by statute&mdash;perhaps after lobbying by these same raisin producers? This might be worse than the private agreement. Private agreements often break down (to the benefit of consumers) because some of the producers cheat on the deal by producing more than the agreed-on quantity or undercutting the agreed-on price, or because new producers enter the market to take advantage of the high prices. But the statutory regime would be able to control these &ldquo;problems&rdquo; with the force of law, and would continue until repealed by the legislature&mdash;i.e., possibly forever.</p>
<p>Nonetheless, in <em>Parker v. Brown</em> (1937), the Supreme Court held that the Sherman Act had nothing to say on the subject. The legislature that passed the Act in 1890 surely didn&rsquo;t mean to control states&rsquo; sovereign activity, even if it was anticompetitive; moreover, a due respect for federalism counseled against preempting state policy in this way. This was the genesis of &ldquo;state action&rdquo; immunity to federal antitrust law.</p>
<p>Since 1937, the Supreme Court has explained in greater detail what it takes for state governments&rsquo; actions to be immune from antitrust law. What if the state authorizes private individuals to engage in price fixing? Surely this isn&rsquo;t immune: states can&rsquo;t invalidate federal law. For private action to be immune, the Court held in <em>California Retail Liquor Dealers Ass&rsquo;n v. Midcal Aluminum, Inc.</em> (1980), it has to be both (1) clearly authorized by state law and (2) actively supervised by the state. This two-prong <em>Midcal</em> test remains the law today. Moreover, the Supreme Court has stated on numerous occasions that state-action immunity&mdash;this judge-made exception to the Sherman Act&mdash;should be applied narrowly.</p>
<p>But what if the state authorizes a municipality to engage in anticompetitive activity? There, the Court held in <em>Town of Hallie v. City of Eau Claire</em> (1985), the first prong of <em>Midcal</em> still applies: the municipality isn&rsquo;t immune from federal antitrust law unless its acts were clearly authorized by state law. But the second prong isn&rsquo;t necessary, because when a political entity like a municipality is involved, we aren&rsquo;t that concerned about purely private profit-seeking. Moreover, the Court suggested, the rule is likely the same for state agencies.</p>
<p>But what if the state agency is composed of active market participants? The North Carolina Board of Dental Examiners was a state regulatory agency, but was also mostly composed of practicing dentists. Is this more like a private party (which doesn&rsquo;t get antitrust immunity unless it can satisfy both prongs of <em>Midcal</em>) or more like a traditional (i.e., public) state agency (which can get immunity after satisfying only the first <em>Midcal</em> prong)?</p>
<p>In <em>N.C. State Board of Dental Examiners v. FTC</em> (2015), the Supreme Court held that when a board is dominated by active market participants, the harms of anticompetitive self-dealing targeted by the Sherman Act are present in full force, so the full two-prong <em>Midcal</em> test must apply before the Board can claim immunity. (This case, before it got to the Supreme Court, was discussed in <a href="http://reason.org/news/show/privatized-regulation-and-antitrust">this blog post</a> from July 2013, as well as <a href="http://reason.org/news/show/government-sponsored-private-regula">this policy brief</a> from May 2014.) In particular, such market-participant-dominated boards must be <em>actively supervised</em> by the state if they want to not have to worry about being sued for violations of federal antitrust law.</p>
<p style="text-align: center;">*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*</p>
<p>The <em>N.C. Dental</em> decision was a blow in favor of competition. Whatever one thinks of antitrust law generally, <em>government-sponsored anticompetitive activity</em> should be at least as tightly controlled as private anticompetitive activity. (Admittedly, some might be uncomfortable, on federalism grounds, with federal interference with how a state chooses to regulate.) But it raised as many questions as it answered. What does it take for a market-participant-dominated agency to be &ldquo;actively supervised&rdquo;?</p>
<p>A case quickly arose to test the contours of active supervision. Teladoc, Inc. is a provider of &ldquo;telehealth services&rdquo;; it provides health-care services by phone or video, instead of by traditional in-person consultation. Typically, employers contract with Teladoc for a subscription fee; its employees create personal accounts and upload their medical records. These individuals can then contact Teladoc at any time and be connected with a doctor trained in phone or video treatment and diagnosis. (This doctor is of course licensed in Texas and has to abide by the same ethical rules as other Texas doctors.) The doctor talks with the patient and consults the patient&rsquo;s records; the doctor&rsquo;s medical advice can include prescribing medications or referring the patient to a physical doctor or an emergency room. Teladoc&rsquo;s services cost a fraction of traditional doctors&rsquo; services and are especially useful for people who work in remote areas where doctors are in short supply.</p>
<p>In Texas, the practice of medicine is regulated by the Texas Medical Board, which is dominated by active market participants&mdash;doctors of one kind or other. In 2010, the Board amended its regulations to provide that doctors cannot prescribe medications to patients without a face-to-face visit. The result was, in effect, to force Teladoc to shut down its operations in Texas.</p>
<p>Teladoc sued in federal district court, alleging (among other things) that the Board had violated the Sherman Act by excluding Teladoc from the market. First, the parties agreed to ignore the question of immunity and just ask the court to decide, on the merits, whether the Board&rsquo;s actions violated the Sherman Act. In May 2015, the court determined that there was indeed a Sherman Act violation. It was clear that the Board&rsquo;s regulations had the effect of limiting supply and increasing price. Of course, in such cases, the Board is allowed to offer a pro-competitive justification for these restrictions: the concern that medical practice without face-to-face consultations would decrease the quality of medical care. But the district court concluded that the evidence for this proposition was scant and anecdotal, and was rebutted by contrary evidence produced by Teladoc, including a study showing positive health outcomes from the use of Teladoc by a large employer in California.</p>
<p>Thus, everything rested on the question of immunity. If the Board was immune, it could safely ignore the court&rsquo;s ruling that its actions violated the Sherman Act. In a second decision, issued in December 2015, the court reached this question, and analyzed whether the Board was immune. Given <em>N.C. Dental</em>, the main question was whether the Board was &ldquo;actively supervised&rdquo; by the state.</p>
<p>Usually, when the Supreme Court imagines active supervision, it&rsquo;s talking about supervision by some official in the executive branch of state government. If a disinterested executive official signs off on every Board decision and endorses its merits, then one can comfortably say that the Board&rsquo;s decision is that of the state, and then immunity properly applies. This is, roughly, the way that Georgia has reacted to the <em>N.C. Dental</em> decision; now the Governor must sign off on any contested decision by a market-participant-dominated board.</p>
<p>But such review doesn&rsquo;t exist in Texas, so the Board&rsquo;s most substantial argument focused instead on state-court judicial review. Whenever any agency adopts a new rule or interpretation of law, any affected party can sue in state court, arguing that the agency is violating the law. The Board argued that this state-court judicial review was sufficient to constitute active supervision. The district court disagreed, therefore holding that the Board wasn&rsquo;t immune. The Board then appealed to the Fifth Circuit (the regional federal appellate court that covers Texas).</p>
<p style="text-align: center;">*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*</p>
<p>At the Fifth Circuit, a group of 55 antitrust and competition scholars&mdash;mostly law or economics professors&mdash;filed an amicus brief agreeing with the district court&rsquo;s (and Teladoc&rsquo;s) analysis and disagreeing with the Board&rsquo;s arguments (more specifically, disagreeing with a better version of the Board&rsquo;s arguments, as reformulated on appeal by the Texas Solicitor General). These scholars included Rebecca Haw Allensworth of Vanderbilt, Aaron Edlin of UC Berkeley, and Einer Elhauge of Harvard, the authors of an antitrust professors&rsquo; Supreme Court amicus brief in N.C. Dental (which I joined), as well as other noted scholars like antitrust treatise author Herbert Hovenkamp. I was the main author of that amicus brief.</p>
<p>First, we argued that state-court judicial review can&rsquo;t confer immunity if it occurs only after costly litigation. State courts won&rsquo;t review a rule that nobody challenges; and affected firms might decide that the cost of a legal challenge is just too great. Even worse, a Board rule might be a disguised form of cartel enforcement (as in the raisin case in the introduction), so perhaps no firm is even interested in challenging the rule. Dispersed consumers may likewise find that challenging the rule isn&rsquo;t cost-effective for them. This amounts to &ldquo;the mere potential for state supervision,&rdquo; which the Supreme Court has held isn&rsquo;t good enough. It doesn&rsquo;t help that judicial review often doesn&rsquo;t even occur until <em>after</em> injury is suffered&mdash;which additionally discourages firms from challenging these rules in court.</p>
<p>Even worse, we argued, state-court judicial review is deferential. This is an issue familiar to anyone who studies judicial review of <em>federal</em> agencies, which is broadly similar to its state counterpart. Say the FCC writes a regulation to implement the Communications Act&mdash;suppose it interprets the federal prohibition against broadcasting indecency to include the broadcast even of &ldquo;fleeting expletives,&rdquo; as when Bono said at the MTV Music Awards that &ldquo;this is f***ing awesome.&rdquo; The FCC uses this new legal interpretation to impose liability on a TV station, and the TV station sues, arguing that this is the incorrect interpretation of &ldquo;indecency.&rdquo;</p>
<p>Under federal administrative law, it&rsquo;s not enough to convince the federal court that this interpretation is incorrect. The federal court has to be convinced not only that the agency was incorrect, but that it was <em>unreasonably</em> incorrect&mdash;in other words, that the agency&rsquo;s decision was &ldquo;arbitrary and capricious&rdquo; or an &ldquo;abuse of discretion.&rdquo; When broad discretion can be exercised (or an ambiguous statute can be interpreted) in several ways that are not unreasonable, the Supreme Court has held that a reviewing court&rsquo;s job is to uphold any of these reasonable choices, and not to substitute its own policy judgment for that of the agency. In federal administrative law, this is called the <em>Chevron</em> and <em>State Farm</em> doctrines, and the Texas Supreme Court has similar doctrines for Texas agencies.</p>
<p>Is this sort of judicial review &ldquo;active supervision&rdquo;? The point of active supervision, as elaborated by <em>N.C. Dental</em>, is to determine whether a challenged action by an agency &ldquo;accords with state policy&rdquo; as determined by disinterested state officials. But the statutes involved here involve huge amounts of discretion; one of the statutes, for instance, requires that doctors &ldquo;practice medicine in an acceptable professional manner consistent with public health and welfare.&rdquo; Does this statute require examinations at an &ldquo;established medical site&rdquo;? Does it authorize disciplinary action against those who prescribe drugs based on an &ldquo;online or telephonic evaluation by questionnaire&rdquo;? There are many possible implementations of this statute that are not unreasonable. But judicial deference means that, in the presence of this broad grant of discretion, judges do not ask whether the agency&rsquo;s choice reflects state policy; instead, judges allow the (self-interested) agency to set its own policy. This is actually <em>the antithesis of active supervision</em>.</p>
<p>The Board also argued generally that Texas law contains many features that, in its view, reduced its own possibilities for self-dealing and enhanced its political accountability. These include appointment and removal of Board members by the governor, the fact that the Board members are specialists from different fields, good-government laws, reporting requirements, and legislative oversight. None of these features actually constitute active supervision: The active supervision requirement demands not just generalized accountability, but actual oversight of the specific action being challenged. Rather, the Board argued that these features &ldquo;reinforce[]&rdquo; or &ldquo;buttress[]&rdquo; active supervision; because all these features together minimize the risk of self-dealing and maximize accountability, the court need not enforce the supervision requirement very stringently.</p>
<p>We argued that several of these details, like legislative oversight, were highly speculative, weak forms of oversight. We also argued that this sort of &ldquo;sliding scale&rdquo; of active-supervision scrutiny, where a court calibrated the stringency of the active-supervision requirement to how strong it thought the risk of self-dealing was in any particular case, would be judicially unadministrable.</p>
<p>But more importantly, we argued that these details were irrelevant to whether there is sufficient active supervision. In <em>N.C. Dental</em>, the Supreme Court did consider the extent of self-dealing and accountability to be important. The Court considered these factors important to the threshold question of whether to require active supervision in the first place&mdash;not to the subsequent question of whether there was active supervision. &ldquo;Self-interest,&rdquo; we wrote, &ldquo;determines whether a Board needs supervision, not whether it is supervised.&rdquo; The <em>N.C. Dental</em> Court painted with a broad brush, explaining that the risk of self-dealing was the problem that infected all market-participated-dominated agencies&mdash;which is why it required that the second prong of <em>Midcal</em> be satisfied. Because the Board had already conceded that (as an obvious consequence of <em>N.C. Dental</em>) it needed supervision, there was no further cause to consider these institutional details.</p>
<p style="text-align: center;">*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*</p>
<p>It would have been nice to have had our arguments endorsed in a precedential opinion by the Fifth Circuit. But Teladoc instead gained a victory of a different sort. In October 2016, perhaps moved by the arguments in our amicus brief&mdash;as well as those in other amicus briefs (the Cato Institute also filed a brief, which discussed other issues such as the right to earn a living)&mdash;the Board withdrew its appeal. This leaves standing the district court opinion in favor of Teladoc and against the Board&rsquo;s antitrust immunity. That opinion has no precedential value, but it does allow Teladoc to continue its operations in Texas, and it may have some persuasive value if the same issue arises in other states. The trend is thus in favor of keeping a tight lid on market-participant-dominated agencies, and requiring that, if a state wants these boards to be immune from antitrust liability, it had better subject them to real, disinterested oversight.</p>
<p><em>Alexander "Sasha" Volokh is an associate professor of law at Emory Law School. An archive of his previous Reason.org articles is <a href="http://reason.org/authors/show/773.html">available here</a>.</em></p>1014702@http://www.reason.orgTue, 08 Nov 2016 10:03:00 ESTinfo@reason.org (Alexander Volokh)Moving Forward Despite Low Market Returnshttp://www.reason.org/blog/show/moving-forward-despite-low-returns
<p>Meager institutional investment returns for pension funds in 2015 and 2016 have marked the low overall returns of the past decade. That period has included losses from the financial crisis, but also several subsequent years of huge returns as markets bounced back. Despite recovery in most areas of the financial markets, pension funds have not seen their long-term averages rise to expected levels, and this is in part because the meager returns for 2015 and 2016 also draw bleak future market outlooks suggesting significantly lower returns over the next few decades relative to the last few. These investment return forecasts have prompted many pension fund analysts to suggest that public pension systems should lower their rate of return assumptions, or else face an even greater swell of unfunded liabilities.</p>
<p>A recent report by <a href="https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1708443&amp;SctArtId=400468&amp;from=CM&amp;nsl_code=LIME&amp;sourceObjectId=9778524&amp;sourceRevId=1&amp;fee_ind=N&amp;exp_date=20260912-20:30:04">S&amp;P Global</a>&nbsp;provides a good explanation on the implications of the new investment return realities for public pension plans around the country. By looking at factors that influence pension plans&rsquo; funded status, including lowered expected fund performance, along with analysis of different approaches from states to growing unfunded liabilities, the report offers some helpful insights for public plan managers on how to move forward in the market &ldquo;<a href="http://reason.org/news/show/for-pensions-systems-past-performan">new normal</a>.&rdquo;</p>
<p>Even in the post-recession market upswing, most state and local pension plans were not able to fully recoup their losses after the 2008 crisis, and virtually every plan has <a href="http://reason.org/blog/show/10-year-investment-returns-update-f">missed their assumed rate of return</a>&nbsp;for the 2015-16 fiscal year. Future prospects do not look very optimistic either; the S&amp;P report references a recent Boston College Center for Retirement Research <a href="http://crr.bc.edu/working-papers/an-overview-of-the-pensionopeb-landscape/">paper</a>&nbsp;that assumes a 6% expected return in its analysis of pension liability and contributions. Meanwhile, <a href="https://www.google.com/url?sa=t&amp;rct=j&amp;q=&amp;esrc=s&amp;source=web&amp;cd=2&amp;cad=rja&amp;uact=8&amp;ved=0ahUKEwjikoLZ_IDQAhVF1oMKHdB9Dm0QFggiMAE&amp;url=http%3A%2F%2Fwww.mckinsey.com%2F~%2Fmedia%2FMcKinsey%2FIndustries%2FPrivate Equity and Principal Investors%2FOur Insights%2FWhy investors may need to lower their sights%2FMGI-Diminishing-returns-Full-report-May-2016.ashx&amp;usg=AFQjCNHqHzcVImdGhqpylgEt877KSPU7Ag&amp;sig2=YEAv8PZ8V5cjz1UM1OX2qg&amp;bvm=bv.136811127,d.eWE">McKinsey</a>&nbsp;estimates that U.S. equities may return up to a maximum 6.5% (in the most optimistic scenario) over the next 20 years, while returns on both U.S. and European bonds are estimated to top out at no more than 2% a year on average during that period. Further still, John Hussman <a href="https://www.hussmanfunds.com/wmc/wmc160523.htm">estimates</a>&nbsp;that a traditional mix of stocks and bonds isn&rsquo;t likely to earn more than 1.5% over the next decade, as my colleague Anthony Randazzo <a href="http://reason.org/blog/show/pension-fund-investment-warning">discussed on this blog</a>&nbsp;yesterday.</p>
<p>What does this mean for public pension plans and their strategies for improving pension health? The S&amp;P report highlights the fact that if assets are growing at a slower pace than the plans'&nbsp;promised pension obligations, the result will be ever increasing unfunded liabilities. Furthermore, if the &ldquo;new normal&rdquo; investment return environment means consistently underperforming investment returns, then the smoothing methods used to gradually phase in asset gains and losses will not be effective at moderating contribution rate growth.</p>
<p>This does not imply&nbsp;that&nbsp;it is easy for public pension plans to realign plan assumptions with market conditions and lower their rate of return expectations by de-risking portfolios. The S&amp;P report authors note that, as in most cases in public policy, &ldquo;these decisions represent a difficult tradeoff between reducing the long-term risk associated with uncertain and volatile market returns in exchange for increased budgetary pressure.&rdquo; Put differently, there is a <a href="http://reason.org/blog/show/rockefeller-volatility-vs-underfund">direct trade-off</a>&nbsp;between minimizing near-term contribution rate volatility and risking long-term underfunding.</p>
<p>This trade-off debate was a focal point of the recent decision by the Illinois Teachers' Retirement System board to <a href="https://www.illinoispolicy.org/taxpayers-forced-to-pay-421-million-more-for-teacher-pensions/">lower the plan&rsquo;s assumed rate of return</a>&nbsp;from 7.5% to 7%. The result of adopting a slightly more realistic assumption about investment returns was a budgetary increase of $421 million for the coming year. This would&nbsp;help the state avoid even more in unfunded liability amortization payments spread out over future budgets, but these decisions nonetheless are fiscally challenging for today&rsquo;s legislatures.<br /> <br />Similar to Illinois, New York State <a href="http://www.bloomberg.com/news/articles/2015-09-04/new-york-state-pension-will-lower-assumed-rate-of-return-to-7-">lowered its return assumption</a>&nbsp;from 7.5% to 7.0% as of its 2015 fiscal year end valuation, and Oregon's Public Employees Retirement System <a href="http://www.opb.org/news/article/pers-lowers-assumed-rate-for-billions-in-retirement-funds/">adjusted its return assumption</a>&nbsp;from 7.75% to 7.5% effective, January 1, 2016.</p>
<p>But not every state is making the same marginal steps towards more realistic investment return expectations. The S&amp;P report affirms what a lot of the asset allocation data from state administrated plans has shown over the past few years&mdash;some pension plans are simply investing&nbsp;larger percentages of their portfolios in more volatile, riskier, illiquid, non-transparent asset classes such that they can keep current assumed return rates in place. The report authors write: &ldquo;actual five-year average returns through 2015 still generally exceed the assumed rates of return for the largest state pension plans, investment allocations have also grown riskier in the previous five years.&rdquo;</p>
<p>Regardless of the strategy adopted, it is important for public pension systems to have clear indicators to illuminate whether or not they are on the right track to a healthier funding status. To that end, the report highlights four major factors impacting the future long-term health of pension plans&nbsp;and state and local government budgets that can serve as a guide:</p>
<ul>
<li>Plans are making some annual progress on funding the unfunded liability;</li>
<li>Funding policies are well-crafted and plan managers proactively target realistic assumptions;</li>
<li>Governments are committed to adequate annual funding; and</li>
<li>Governments are successful in pension reform initiatives to control growth in liabilities.</li>
</ul>
<p>While all four are important, perhaps the most fundamental are a fund&rsquo;s annual progress in paying off the total pension debt and adopting a funding policy based on realistic actuarial assumptions.</p>
<p>In fact, realistic assumptions are most critical because they feed into the actuarially determined contribution (ADC). Employers should always pay at least 100% of the ADC, but if that contribution rate is underpriced by the assumptions, the plan is still being tacitly underfunded. As the report notes, &ldquo;<span style="text-decoration: underline;">effectiveness at reducing the overall liability is only as good as the assumptions used to calculate it</span>.&rdquo;</p>
<p>Perhaps the key takeaway from the S&amp;P Global report is that the future will probably not look the same as the past 30 years, which will intensify the trade-offs in maintaining overly optimistic return assumptions, and likely lead to growing unfunded liabilities in the long-run. And unless public sector pension funds continue lowering their assumptions, taking more investment risk, or advancing pension reforms, their health status will only get worse. The report finds that in the past the states that consistently made full required contributions based on relatively conservative actuarial assumptions were mainly those that now&nbsp;enjoy the highest pension funded ratios and are showing the strongest progress in annual pension funding.</p>
<p>To read the full paper, go <a href="https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1708443&amp;SctArtId=400468&amp;from=CM&amp;nsl_code=LIME&amp;sourceObjectId=9778524&amp;sourceRevId=1&amp;fee_ind=N&amp;exp_date=20260912-20:30:04">here</a>.</p>1014701@http://www.reason.orgTue, 08 Nov 2016 08:00:00 ESTanil.niraula@reason.org (Anil Niraula)Spotlight On Pension Fund Investment in Real Estate http://www.reason.org/blog/show/spotlight-on-real-estate-investment
<p>As public sector pension plans have looked to supplement falling yields from bonds and equities, real estate has emerged as a top choice for alternative investment. Preqin &ndash; a large consulting company that specializes in alternative assets, such as real estate, private equity, and hedge funds &mdash; issued its <a href="https://www.preqin.com/docs/newsletters/re/Preqin-Real-Estate-Spotlight-September-2016.pdf">latest Real Estate Spotlight</a> report that shows pension funds around the world continue to be key investors in the real estate industry. As of September 2016 public sector pension plans had $681 billion invested in real estate, the largest amount of any category of institutional investor covered by the report.</p>
<p>Private sector pension plans, on the other hand, have allocated $340 billion in the asset class, the report says, though there are slightly more private sector plans dipping to the real estate markets. Preqin finds that 15% of all institutional investors investing in real estate are public sector pension plans, which is second only to private pensions at 19%.</p>
<p>Furthermore, roughly nine out of 10 domestic and international public pension funds currently invest in some kind of real estate. Meanwhile, domestic public pension giants CalPERS and CalSTRS made the list of the top five largest global pension funds investing in the asset class, accounting for $27 billion and $26 billion of overall holdings, respectively.</p>
<p>Real estate is an attractive investment for pension plans because they are managing funds that have long-term commitments, and real estate tends to be an asset to hold for the long-term. However, pension plans also are managed several steps removed from the taxpayers that ultimately bear the responsibility for investment losses. And it&rsquo;s impossible to define risk tolerance for a multi-generational group of taxpayers. Thus there is a limit to the degree of diversification that a public plan should take on and there are strong arguments for public plans weighting heavily less risky assets in their portfolios.&nbsp;</p>
<p>It may be that for most plans real estate is one kind of long-term assets to hold that is acceptable for a multi-generational taxpayer sense of risk tolerance. But while the pattern of <a href="http://www.ey.com/Publication/vwLUAssets/EY-global-market-outlook-2016-trends-in-real-estate-private-equity/$FILE/EY-global-market-outlook-2016-trends-in-real-estate-private-equity.pdf">favorable returns</a> to real estate may persist for some time, there are certain risks funds should be aware of.</p>
<ul style="list-style-type: disc;">
<li>First, high-risk/high-volatility instruments &mdash; such as global real estate &mdash; will have fluctuating returns that swing between high yields and substantial losses.</li>
<li>Second, funds should also not be so overly exposed to real estate that large swings domestically (think housing crisis) will by themselves drive annual returns down dramatically and subsequently drive up unfunded liability amortization payments.</li>
<li>Third, since <a href="http://reason.org/blog/show/pension-reform-new-normal">past performance is not necessarily a guarantee of future results</a>, pension plans need to ensure that their investment staff are capable of understanding the complexities and non-liquid nature of real estate as an alternative investment class.</li>
</ul>
<p>As <a href="https://www.morganstanley.com/articles/risk-mitigation-in-real-estate-portfolios">Morgan Stanley</a> put it &ldquo;[t]here are no &ldquo;bulletproof&rdquo; deals, but portfolios can be monitored and managed for risk.&rdquo; The consulting company reminds us that real estate is inherently cyclical, suggesting that it should be constantly monitored for risks. Fore more effective results&nbsp;investors are advised to monitor property sector exposure, including such property characteristics as geography, risk classification, life cycle of the asset, investment structure, and type of external management company.</p>
<p>To read the Preqin&rsquo;s full report, go <a href="https://www.preqin.com/docs/newsletters/re/Preqin-Real-Estate-Spotlight-September-2016.pdf">here</a>.</p>1014683@http://www.reason.orgTue, 25 Oct 2016 09:00:00 EDTanil.niraula@reason.org (Anil Niraula)Fitch Downgrades Dallas Bond Rating Over City Public Safety Pension Crisishttp://www.reason.org/blog/show/dallas-public-safety-pension-crisis
<p>Fitch has recently downgraded the City of <a href="http://www.dallasnews.com/news/dallas-city-hall/2016/10/06/dallas-sees-credit-score-drop-fitch-downgrades-bond-rating-amid-pension-fears">Dallas (Texas) bond rating</a> in light of the worsening public debt of its police and fire pension fund. Meanwhile, The Deferred Retirement Option Plan (DROP) &ndash; one of the most troublesome programs in the pension system &ndash; has already experienced an exodus of $220 million in withdrawals in less than six weeks.</p>
<p>For years, the Dallas Police &amp; Fire Pension System (DPFP) has seen a steady erosion of its solvency that could be attributed to poor investment management, overly optimistic actuarial assumptions, and lavish benefit payments that weren&rsquo;t properly pre-funded. Moreover, recent actuarial valuations suggest that time for prudent actions seems to be running out &ndash; as of January 1, 2016, the plan was only 45.1% <a href="https://www.dpfp.org/images/PDFs/AnnualReports/2015/DPFP_CAFR_2015.pdf">funded</a>&nbsp;and projected to run out of money as early as FYE2030 <a href="http://www.nbcdfw.com/news/local/Dallas-Police-Fire-Pension-Crisis-Worsens-397026181.html">if not sooner</a>.</p>
<p>&ldquo;I&rsquo;ve had 40 to 50 officers in my office this week asking what they should do,&rdquo; said James Parnell, 52, <a href="http://www.bloomberg.com/news/articles/2016-09-27/dallas-police-seeing-exodus-as-era-of-low-returns-costs-pension">secretary-treasurer</a> of the Dallas Police Association. To shed some light on how the fund reached this stage it is helpful to look back in time.</p>
<p>Perhaps two of the main issues hovering over the plan&rsquo;s dire situation are the financing of DROP and overall funding policy. Until 2011, public safety personnel in Dallas were <a href="https://www.dpfp.org/images/PDFs/AnnualReports/2015/DPFP_CAFR_2015.pdf">eligible to retire</a> and draw their pensions after 20 years of employment, allowing them to start another career as early as their 40s. The city established its DROP program in 1993 as a mechanism intended to provide an incentive for police and firefighters to remain employed and not retire immediately upon hitting the 20-year retirement eligibility minimum.</p>
<p>The way the DROP operates is by allowing a member eligible for retirement to remain working, and instead of paying out pension benefits, the employer freezes their compensation and years of service, but in return deposits what would have been the employee&rsquo;s monthly pension benefit into a separate account with a <a href="http://reason.com/blog/2016/09/19/dallas-cops-get-wise-to-impending-public">guaranteed interest rate of between 8% to 10%</a>.&nbsp;The so-called &ldquo;double dipping&rdquo; part of the program is a debatable feature, but the guaranteed rate of return is unambiguously problematic. Average returns for the plan haven&rsquo;t been anywhere near 8% to 10% for the past decade.</p>
<p>DROP was certainly a <a href="http://www.dallasnews.com/news/news/2015/01/14/dallas-police-fire-pension-cuts-off-lucrative-option-for-retirees--for-now">boon for some employees</a>. As of 2015, nearly half of retirees and a quarter of active members were in the program, with accounts averaging at $422,000. <a href="https://www.dpfp.org/2015/DPFP-Info_Mtg_Presentation_9_2015.pdf">And it developed rapidly</a>, as the plan saw a 31% increase in its membership since 2006 and a staggering 679% growth of distributed benefits since 2005, all compared to 2015 estimates. The program essentially took over the pension system, with $112 million paid out in monthly benefits and lump sums in 2015 alone, constituting approximately 64% of all distributions paid to members last year.</p>
<p>That rapid rate of DROP payouts is connected to the broken funding policy of the DPFP pension plan in several ways. To start, the plan has been using an 8.5% unrealistically high assumed rate of return <a href="http://www.dpfps.org/dallas-police-pension-reports/pension-annual-reports-2001.pdf">since 1999</a>. (Only <a href="https://www.dpfp.org/images/PDFs/AnnualReports/2015/DPFP_CAFR_2015.pdf">in 2015</a> did the plan initiate changes to its investment assumption lowering it to 7.25% return.) And the reality of actual returns has been harsh. &nbsp;</p>
<p>In 2000 the plan&rsquo;s asset allocation was set up with an expectation of earning 8.5%. But over the past 15-years, DPFP&rsquo;s average market return has been just 3.19%.* Between when the plan adopted the 8.5% assumed return and 2009 the average market valued return was just 5.9%. And looking at the plans investments over just <a href="https://www.dpfp.org/images/PDFs/AnnualReports/2015/DPFP_CAFR_2015.pdf">the past five years</a> (2011 to 2015) &mdash; i.e. after the financial crisis &mdash; the market return for the Dallas plan has averaged only 0.32%.</p>
<p>That underperformance in investment return not only has created a lack of trust in the plan&rsquo;s solvency &mdash; leading to a wave of employees leaving the plan along with their DROP accounts &mdash; but the guaranteed rates of return on those DROP accounts were far higher than actual returns the plan was getting, creating vicious feedback loop that drove up plan unfunded liabilities even higher.</p>
<p>As a result of these and other subsequent factors, between the fiscal years ending 2007 and 2015, DPFP&rsquo;s <a href="https://www.dpfp.org/images/PDFs/AnnualReports/2015/DPFP_CAFR_2015.pdf">funded status</a> declined by almost half, from 89% to 45%. The plan currently recognizes $3.3 billion in unfunded liabilities.</p>
<p>The situation worsens each week as more and more members pull out their money in fear that interest rates on the DROP accounts will be cut, and that member contributions will rise. This, in turn, has forced the pension board to <a href="http://www.dallasnews.com/news/dallas-city-hall/2016/10/13/dallas-police-pension-fund-now-wants-city-pay-keep-lights">push the city for more funding</a> to help the depleted assets. Mayor Mike Rawlings has recently even proposed putting off a voter referendum on a <a href="http://www.bloomberg.com/news/articles/2016-09-27/dallas-police-seeing-exodus-as-era-of-low-returns-costs-pension">needed infrastructure bond</a> until the city comes up with a fix for the public safety retirement system.</p>
<p>The DPFP board and staff are currently working with their new actuarial consultant to develop a set of changes to plan provisions they would like to address in an upcoming reform. While doing so, local officials and other stakeholders may also benefit from the experience of jurisdictions like the State of <a href="http://reason.org/news/show/az-public-safety-pension-reform">Arizona</a>, which enacted major reforms for its statewide police and fire pension system earlier this year that had the buy-in from employers, employee associations and elected officials.</p>
<p>The next Texas legislative session starts in January 2017, and any meaningful DPFP reform would require sufficient support by plan members, local officials, and state legislators.</p>1014684@http://www.reason.orgMon, 24 Oct 2016 08:36:00 EDTanil.niraula@reason.org (Anil Niraula)Another Tool to Measure Pension Health: Net Amortizationhttp://www.reason.org/blog/show/new-tool-net-amortization
<p>One sure fire way to stay in debt is to never pay a dollar towards the principal. It's something every responsible credit card holder knows. But is something that a large number of public sector pension plans don&rsquo;t seem to understand.</p>
<p>One of the major reasons that public sector pension plans have seen their unfunded liabilities grow over the past decade is that actuarially calculated amortization payments can often times be less than what needs to flow into that plan in order to fully fund benefit payments. For example, a plan with a three-decade long, open amortization schedule (ex. the South Carolina Retirement System) is almost certainly making unfunded liability amortization payments that are less than the interest accruing on that same unfunded liability, leading to negative amortization. Highlighting such concerns can often require a detailed examination of a pension plan&rsquo;s actuarial valuation, and a <a href="http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2016/08/the-state-pension-funding-gap-2014">new project</a>&nbsp;by The Pew Charitable Trusts is seeking to make it a bit easier to spot the troubled plans.</p>
<p>The recently adopted GASB <a href="http://gasb.org/resources/ccurl/399/602/GASBS67.pdf">67</a>&nbsp;and GABS <a href="http://www.gasb.org/resources/ccurl/988/315/GASBS 68.pdf">68</a>&nbsp;accounting rules require plans to report more data than ever before. The new GASB disclosures include information that can be leveraged to conduct enhanced analysis of plan contribution policies compared with previously available data. Before the change, most researchers and policy institutions primarily relied on the Actuarially Determined Employer Contribution (ADEC) for comparison, which only indicates the estimated contribution level and can sometimes be a less than reliable metric when it comes to <a href="http://reason.org/blog/show/pension-underfunding-alabama">signaling plans true fiscal health</a>.<a href="#[2]">[1]</a><a id="[1]"></a>&nbsp;Now, the new data included in public pension financial statements, on the other hand, allows for measurement of exact contributions made to the plan and see whether an employer&rsquo;s<a id="[3]"></a> contribution policy achieves net amortization.<a href="#[4]">[2]</a></p>
<p>In a new policy brief, Pew outlines how it has taken GASB disclosures and parsed the data to tabulate what it calls &ldquo;net amortization.&rdquo; This measure is intended to provide insights into fiscal health of public sector pension plans.</p>
<p>Net amortization focuses on the level at which employers&rsquo; annual contributions are sufficient to pay for both the current year&rsquo;s normal cost and the accrued interest on pension debt, all after netting out employee contributions and assuming that the plans&rsquo; actuarial assumptions are met for that year. Thus, if assumptions are proven to be correct, plans receiving contributions should meet a &ldquo;net amortization benchmark&rdquo; and see their unfunded liabilities shrink. If contributions from the employer are not sufficient to pay for normal cost and interest on the unfunded liability, then the net amortization benchmark would not be met and unfunded liabilities would grow (even assuming actuarial assumptions are met). Thus, the net amortization measure provides an alternative assessment of any given plans&rsquo; contribution policies without taking into account unexpected actuarial gains and losses.</p>
<p>According to the Pew report, 15 states in 2014&nbsp;followed policies that meet the positive amortization benchmark (exceeding 100 percent of needed funding) and can be expected to reduce pension debt in the near term. The remaining 35 states fell short of the benchmark.</p>
<p>In many respects the &ldquo;net amortization&rdquo; figure could be considered just another way of framing negative amortization &mdash; but it captures more than just plans using open amortization schedules. It&rsquo;s greatest strength is in pinning down how much a plan might be underfunding a basic standard of paying normal cost and at least interest on the debt, all using simple arithmetic from a GASB disclosure. The principal weakness of net amortization is that it is dependent on a plan&rsquo;s actuarial assumptions. Since the&nbsp;measure uses each plan&rsquo;s own assumptions, pension plans with higher assumed rates of return will have lower estimated costs of benefits, and lower benchmark as a result. So while the new metric might prove itself to be helpful for policy analysts to track the health condition of public pension plans, net amortization can not be considered as a singular measure of plan fiscal health any more than the ADEC can be considered a perfect measure of fiscal health. Still, net amortization has the potential to be a key tool in the toolbox of benchmarks that state legislators and plan managers can use to evaluate overall fiscal health and consider how to improve their plans' solvency.</p>
<p>To read the full paper, go <a href="http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2016/08/the-state-pension-funding-gap-2014">here</a>.&nbsp;</p>
<p><span style="color: #1e1e1e; font-size: 12px; font-family: 'Lucida Sans', 'Lucida Sans Unicode', Arial, Geneva, sans-serif;">__________________________</span></p>
<p><a id="[1]" title="[1]" href="#1"></a><a href="#[1]">[1]</a><a id="[2]"></a>&nbsp;ADEC - formerly Annual Required Contribution (ARC)</p>
<p><a href="#[3]">[2]</a><a id="[4]"></a>&nbsp;Calculation of a plan&rsquo;s net amortization starts with the employer contribution benchmark: Employer contribution benchmark = service cost plus interest on the prior year&rsquo;s debt minus employee contributions (with interest). Net amortization = employer and other contributions (with interest) minus the employer benchmark.</p>1014634@http://www.reason.orgSun, 25 Sep 2016 12:00:00 EDTanil.niraula@reason.org (Anil Niraula)New Study Examines Pension Underfunding in Alabamahttp://www.reason.org/blog/show/pension-underfunding-alabama
<p>A recent in-depth <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2795692">case study</a> of The Retirement Systems of Alabama (RSA)&nbsp;by Daniel J. Smith and John A. Dove from Troy University finds the pension plan has significant room to improve. RSA is situated similarly to a number of other public pension systems in the country, ranked in 30th place by funding level by the Pew Foundation as of 2013. However, this ranking is down from 20th place in 2003. The primary reason is the funded ratio has fallen from 92.7% in 2003 to 65.9% in 2013. Smith and Dove note that RSA has made some sensible changes in recent years, including switch to a &ldquo;closed amortization period&rdquo; for unfunded liabilities, but the system is still in need of further improvements in it's accounting standards, transparency and oversight, and the use of economically targeted investments.</p>
<p>The Smith and Dove paper analyzes factors influencing the declining performance of RSA, and it examines the limitations of using Actuarially Determined Employer Contribution (ADEC)* in interpreting a system&rsquo;s fiscal health. In particular, the authors cite a 2015 <a href="http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2015/07/the-state-pensions-funding-gap-challenges-persist">Pew Charitable Trusts</a> study to show that even though states like Alabama, Tennessee, and West Virginia contributed on average 100% or more of their ADEC&nbsp;from 2003 to 2013, their unfunded&nbsp;liabilities kept on rising regardless. For example, both Tennessee and Alabama systems were almost fully funded in 2003 with 98.6% and 92.7% levels respectively. Then 10 years later when Tennessee still maintained it's healthy status at 94%, Alabama's funded level dropped to 65.9%.</p>
<p>One of the more apparent reasons for RSA's decline, like many other state retirement systems, is the poor investment performance, including the years of the financial crisis. In order to maintain a long-term investment return target of 8%, the change in financial markets since the crisis has forced RSA to adopt riskier investment allocations, which leaves the state at risk of greater fiscal burdens in the future. Unlike more than one-half of state public pension funds, which have lowered their assumed rates of return since 2008, the RSA's assumed rate of return on investments has not been adjusted.</p>
<p>A less apparent reason cited by Smith and Dove is that RSA also devotes sizeable portion of its portfolio toward the economically targeted investments (ETIs)&mdash;that is, making investment decisions based on their state-level economic impacts rather than on investment returns they generate. Not only is this suspect from a fiduciary responsibility standpoint, but it also suggests the possibility that RSA may have in some cases foregone higher returns due to political motivations.</p>
<p>Another cause of RSA&rsquo;s rising pension debt is the fact that until recently Alabama used a so-called "<a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2616849">open amortization</a>" method for calculating annual payments on unfunded liabilities. The open amortization schedule allowed RSA to basically reset the amortization period each fiscal year, instead of trying to pay off retirement debt within a fixed time frame. Generally speaking, open amortization periods results in lower amortization payments made by the employer each year than would be the case with a "closed amortization" schedule.</p>
<p>One solution proposed by the paper, besides curtailing or eliminating ETIs, is to adopt a much greater degree of transparency and reporting, which was recently emphasized by the <a href="http://www.aei.org/publication/are-state-and-local-government-pensions-underfunded-by-5-trillion/">Actuarial Standards Board's Pension Task Force</a>.</p>
<p>Overall, the report suggests that in order to develop a holistic picture of a state retirement system, a more focused review of state systems is required. Detailed analysis of state pension systems like this, unlike the aggregate studies, gives an opportunity to account for the unique political, economic, demographic, and financial landscape factors that a particular retirement system faces. This could prove to be especially helpful when it comes to informing policymakers and supplying concrete recommendations for reform.</p>
<p>*<em>Formerly the Annual Defined Contribution (ARC), which was replaced by the 2014 GASB standards</em></p>
<p>To read the full paper, go <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2795692">here</a>.&nbsp;</p>1014587@http://www.reason.orgMon, 08 Aug 2016 09:30:00 EDTanil.niraula@reason.org (Anil Niraula)Update From the Sonoma County Pension Advisory Committeehttp://www.reason.org/blog/show/sonomapensions
<p>The Sonoma County Independent Citizens Advisory Committee on Pension Matters released <a href="http://sonomacounty.ca.gov/Independent-Citizens-Advisory-Committee-on-Pension-Matters/">a report</a> last month detailing how the County&rsquo;s pension liability has grown so rapidly in the past 15 years. The Committee was formed last year to address the County&rsquo;s growing unfunded pension liability. Their report also makes policy recommendations for reversing this trend.</p>
<p>&nbsp;</p>
<p>The policies of the previous ten years have put the Sonoma County Employee&rsquo;s Retirement Association (SCERA) plan in a precarious financial situation. Annual pension costs have increased from $19 million a decade ago to $97 million today. Reforms included in the 2012 California Public Employees&rsquo; Pension Reform Act (PEPRA) and those made by the Sonoma County Committee are projected to save about $178 million over the next 10 years. While this is certainly good news, these changes,&nbsp;<a href="http://reason.org/files/pepra_pension_reform.pdf">particularly those included in PEPRA</a>, are dwarfed by the County&rsquo;s remaining unfunded liability; the pension costs for SCERA will still be $544 million over the County&rsquo;s cost containment goals for the next decade, defined as costs in excess of 18% of pensionable payroll. The combined liability, which includes both the unfunded accrued liability and payments for Pension Obligation Bonds (POBs) was $831&nbsp;million as of December 2015.</p>
<p>&nbsp;</p>
<p>How did SCERA find itself in such a position? In 2002, the Sonoma County Board of Supervisors <a href="http://californiapolicycenter.org/analyzing-sonoma-countys-pension-crisis/">retroactively increased the pension benefits</a> to 3% of salary per year of service for Safety and General employees at ages 50 and 60, respectively. According to the Committee, the benefit increase combined with an increase in the number of pensionable income pay items brought about by the <a href="http://www.lacera.com/benefits/Retired_Member/ventura_settlement.html">1997 Ventura Decision</a>, had the predictable consequences of reduced retirement ages, from 62 to 57 for General employees and 56 to 51 for Safety employees, and a massively increased average pension costs, from $35,803 in 2002 to $60,697 in 2006.</p>
<p>&nbsp;</p>
<p>The Committee points to a number of other policies that also contributed to this crisis. Pension spiking, when employees&rsquo; salaries are increased just before retirement, increased the pension payouts to retiring employees. In the past, Sonoma County had also paid a portion of the employee&rsquo;s pension contribution, further increasing the taxpayer&rsquo;s share of the pension costs.</p>
<p>&nbsp;</p>
<p>Additionally, previous accounting practices undervalued the total liability of the pension system. To help refinance some of the unfunded liability and decrease interest costs, the County has issued Pension Obligation Bonds (POBs). However, Sonoma County <em>did not include the POB liability when calculating the funded ratio</em>. When this figure is included, the December 2015 funded ratio drops from 84.9% to 73.1%.</p>
<p>&nbsp;</p>
<p>The mistakes of policymakers do not only imperil the future of SCERA. Pension expenses have seriously diminished the ability of the County to provide basic services. According to the report, "if the County had maintained pension costs at the County-defined sustainable level of 10%, over $269 million in resources would have been available to fund critical public services over the past 10 years." The report states that only $10 million per year (less than 40% of the total funds used to cover the excess costs during this period) could have paid for 44 new sheriff&rsquo;s deputies or 40 miles of road improvements per year.</p>
<p>&nbsp;</p>
<p>The report recognizes that achieving these policy objectives will be difficult. Even if its models are correct, policymakers will have to contend with entrenched public-sector union interests opposing reform. For this, they may have to turn to state law rather than reform at the County level. Sonoma&nbsp;County has already partially reduced its unfunded liability thanks to the Committee&rsquo;s recommendations and PEPRA, but more aggressive policy measures will be necessary to restore fiscal health to SCERA.&nbsp;</p>
<p>&nbsp;</p>1014584@http://www.reason.orgFri, 05 Aug 2016 02:00:00 EDTdaniel.takash@reason.org (Daniel Takash )Pension Boards Should Focus on Pensions Rather than Progressive Politicshttp://www.reason.org/news/show/pensiondivestment
<p>Last month, in an attempt to put pressure on gun vendors, the New York City Employees&rsquo; Retirement System <a href="http://www.nytimes.com/2016/07/15/business/dealbook/new-york-city-pension-fund-to-divest-itself-of-gun-retailer-stock.html">voted to sell over $10</a>&nbsp;million&nbsp;in shares of Dick&rsquo;s Sporting Goods, Cabela&rsquo;s, and Big 5 Sporting Goods.</p>
<p>&nbsp;</p>
<p>This strategy, known as divestment, is employed by shareholders (usually pension funds or university endowments) to take a political stand against disfavored companies or industry sectors or encourage firms to change their business practices. Activists have targeted a number of different industries, including tobacco and gun manufacturers, for divestment. Even United Nations Secretary General Ban Ki-moon <a href="http://www.pensionfundsonline.co.uk/content/pension-funds-insider/investment/un-secretary-general-advises-pension-funds-to-divest-from-fossil-fuels/1559">has encouraged</a> pension funds to divest from companies that produce fossil fuels.</p>
<p>&nbsp;</p>
<p>Despite these pleas for investors to pressure firms in the name of corporate responsibility, it is not wise for public sector pensions to promote social change at the expense of pensioners. As the fiduciaries of public sector pension funds, pension boards have an affirmative obligation to maximize the returns of their respective funds for the good of the pensioners rather than employing these funds to achieve political ends.</p>
<p>&nbsp;</p>
<p>Before moving on, it is important to note that divestment is <em>not</em> selling off shares due to anticipated poor performance by a firm or an industry. For example, even if the New York State Common Retirement Fund (NYS-CRF) <a href="https://www.theguardian.com/sustainable-business/2016/mar/04/fossil-fuel-divestment-new-york-state-pension-fund-hurricane-sandy-ftse">would have made $5.3 billion by divesting from fossil fuel companies</a>, this could have been achieved independent of a desire to make a statement about alternative energy. An investor could have been completely indifferent to the damage done during the Deepwater Horizon oil spill, but it still would have been wise for them to sell any shares of BP they owned in the wake of the disaster.</p>
<p>&nbsp;</p>
<p>In these cases, a savvy portfolio manager and an activist would make the same trades. By contrast, divestment is an attempt to do economic harm to a firm or industry to engender social change. The former is responding to a decline in the price of an asset, whereas the latter attempts to create such a decline.</p>
<p>&nbsp;</p>
<p>There are examples of political change occurring alongside divestment campaigns, such <a href="http://richardknight.homestead.com/files/uscorporations.htm">as the case of Apartheid South Africa</a>. A <a href="http://www.middlebury.edu/media/view/443860/original/effects_of_socially_activist_investment_policies.pdf">1999 study published by the <em>Journal of Business</em></a>, however, found little evidence that divestment influenced corporations with operations in South Africa or South African financial markets. Divestment was far from the only measure employed by the international community to put pressure on the Apartheid government. <a href="https://www.congress.gov/bill/99th-congress/house-bill/4868">The Comprehensive Anti-Apartheid Act</a> imposed numerous restrictions on trade and investment in South Africa. Perhaps divestment made Apartheid a more salient issue and increased the demand for political action, but divestment is hardly the only way to achieve this outcome.</p>
<p>&nbsp;</p>
<p>Even if divestment served as the impetus for change in the past, it&rsquo;s questionable that these actions will have a significant effect on the bottom line of the firms targeted in today&rsquo;s divestment campaigns. <a href="http://finance.yahoo.com/quote/DKS?ltr=1">Dick&rsquo;s Sporting Goods</a> alone has a market capitalization of $5.7 billion, and while its stock price fell on Thursday afternoon, along with Cabela and Big 5&rsquo;s, their share prices returned to their pre-divestment levels by the beginning of the following week.</p>
<p>&nbsp;</p>
<p>As in the case of South Africa, changing the policies of these firms may require more aggressive action than simply divesting. In the wake of the Newtown shooting and the Chicago pension fund&rsquo;s $5 billion dollar divestment from gun manufacturers, Rahm Emanuel <a href="http://www.nytimes.com/2013/01/25/business/city-officials-push-pension-funds-to-divest-from-gun-makers.html">encouraged TD Bank and Bank of America</a> to stop financing gun manufacturers as well.</p>
<p>&nbsp;</p>
<p>Perhaps this more aggressive strategy would work; it would be difficult for any firm to stay in business if major financial institutions refused to provide financing. But this strategy would take pension boards down a rabbit hole. Should they divest from any financial institution that invests in gun manufacturers or oil companies? <a href="http://www.nydailynews.com/opinion/letitia-james-n-y-pension-funds-divest-walmart-article-1.2309583">Walmart</a> is another firm targeted by pension funds eager to divest from gun vendors, but would it be worth punishing a company for only one part of its business model?</p>
<p>&nbsp;</p>
<p>While the case for divestment&rsquo;s ability to produce social change is dubious, one thing is clear:&nbsp;divestment, by definition, weakens the financial position of those who divest. The California Public Employees&rsquo; Retirement System (CalPERS), which reported an <a href="http://www.latimes.com/business/la-fi-calpers-returns-20160718-snap-story.html">investment return of a meager 0.61%</a> last year, has <a href="http://www.ocregister.com/articles/tobacco-712618-divestment-calpers.html">lost $3</a>&nbsp;billion&nbsp;by divesting from tobacco stocks in 2000.&nbsp; These effects are largely due to the risks <a href="http://www.wsj.com/articles/daniel-r-fischel-the-feel-good-folly-of-fossil-fuel-divestment-1423527484">posed by an improperly diversified portfolio</a>. By&nbsp;selling assets that aren&rsquo;t highly correlated with the rest of the portfolio, they increase the fund&rsquo;s sensitivity to economic downturn. The negative effects of divestment are compounded by the trend of funds like CalPERS to increase their share of riskier assets, like equity and real estate, chasing higher gains at the cost of increased volatility.</p>
<p>&nbsp;</p>
<p>Pensions funds not only forgo the potential returns from companies they divest from, but also lose money through the rather expensive divestment process. Many university endowments and pension funds make long-term investments in illiquid assets, which means there are high transaction costs to divestment. Additionally, because many divestment efforts target industries rather than specific companies (e.g. &ldquo;fossil fuel companies&rdquo; rather than explicitly identifying Exxon, Shell, etc.), the compliance costs for fund managers increase as they try to satisfy the <a href="http://www.forbes.com/sites/ryanellis/2016/06/20/taxpayers-bear-the-true-cost-of-political-divestment-schemes/#723b3102426b">sometimes-vague</a> divestment goals of their customers.</p>
<p>&nbsp;</p>
<p>Even if pro-divestment organizations explicitly identify such firms (as in the case of New York&rsquo;s gun vendor divestment), these funds often do not directly own shares of the companies themselves. Rather, these funds are invested in mutual funds, index funds, and ETFs. This makes it difficult to divest from the targeted companies without also divesting from firms completely unrelated to the targeted industry because their shares are grouped together. <a href="http://divestmentfacts.com/wp-content/uploads/2016/06/Bessembinder-Report-Full-06032016.pdf">One study</a> found that these costs would, for the average endowment of a large university, cost two to twelve percent of a large university&rsquo;s endowment, a loss of $1.4 to $7.4 billion.<a href="#_ftn1" name="_ftnref1">[1]</a></p>
<p>&nbsp;</p>
<p>Indeed, many universities such as <a href="http://www.harvard.edu/president/news/2013/fossil-fuel-divestment-statement">Harvard</a> and <a href="http://president.tufts.edu/recommendations-of-the-tufts-divestment-working-group/">Tufts</a>, decided against divestment because it would &ldquo;instrumentalize [their] endowment in ways that would appear to position the University as a political actor rather than an academic institution.&rdquo; While these and other institutions remain committed to promoting positive social change, they choose to do this through the continuance of other university programs. &ldquo;The endowment is a resource,&rdquo; wrote Harvard President Drew Faust, &ldquo;not an instrument to impel social or political change.&rdquo;</p>
<p>&nbsp;</p>
<p>The necessity to prioritize the wellbeing of their investment portfolio is even greater for public sector funds than universities. CalPERS <a href="https://www.calpers.ca.gov/docs/forms-publications/cafr-2015.pdf">&nbsp;was only 76% funded</a> last year despite using a discount rate <a href="https://cl.ly/1U2z0Z1n0R3p">consistently above the actual investment returns</a>. At its present course, CalPERS and many other pension funds will face a fiscal crisis that would far outweigh any marginal gains it would make in a quixotic attempt to solve gun violence, climate change, or smoking.</p>
<p>&nbsp;</p>
<p><a href="#_ftnref1" name="_ftn1">[1]</a>&nbsp;<em>Though the views expressed in this study were Prof. Bessembinder&rsquo;s, his study was commissioned and financed by the Independent Petroleum Association of America.</em></p>
<p>&nbsp;</p>1014586@http://www.reason.orgThu, 04 Aug 2016 13:11:00 EDTdaniel.takash@reason.org (Daniel Takash )Occupational Licensing Kills Jobshttp://www.reason.org/news/show/occupational-licensing-kills-jobs
<p>Florida needs to take a hard look at its licensing requirements. In many instances licensing requirements can be replaced with consumers exercising choice among competing providers, which serves consumers well in so many other states. Allowing and encouraging voluntary certification by professional groups and independent ratings by business and consumer groups also can be valuable and quickly remove bad actors from the market. And requiring insurance for some occupations to cover claims by consumers if they are harmed may also provide protections in some instances.</p>1014436@http://www.reason.orgMon, 01 Feb 2016 13:27:00 ESTinfo@reason.org (Matthew Laird)How Privatization Could Improve Accountability at Scandal-Plagued Texas Hospitalhttp://www.reason.org/news/show/how-privatization-could-improve-acc
Tyler Morning Telegraph <p>Change is never easy, as recently demonstrated by the state&rsquo;s move to privatize Terrell State Hospital and the ensuing calls by state Sen. Robert Nichols and the <em>Tyler Morning Telegraph</em> editorial page to put a stop to it. Accountability is a recurring theme among skeptics of the hospital privatization plans, so it&rsquo;s useful to delve deeper on that issue.</p>
<p>Government has operated Terrell State Hospital and concerns that a private operator might be less accountable for patient care are understandable &mdash; but wrong. The pursuit of privatization was prompted by the 2012 death of a 62-year old patient at Terrell State Hospital, who was held in restraints for 55 straight hours. After an Austin American-Statesman investigation brought the story to light, a federal investigation found that being strapped down for that long led to her death and the widespread quality of care problems at Terrell were causing &ldquo;immediate jeopardy to patient health and safety.&rdquo; In fact, the Centers for Medicare and Medicaid Services threatened to pull nearly $5 million in federal funding from the hospital to force immediate action to improve patient care, and the state even considered closing Terrell&rsquo;s medical unit for patient safety.</p>
<p>Accountability has thus been lacking under state control, and while privatization is no guaranteed panacea, the private sector does have a solid track record operating similar hospitals.</p>
<p>South Florida State Hospital &mdash; the first psychiatric hospital privatized in that state &mdash; offers a good example. Within the first year of privatization, the private operator was able to get the existing facility accredited for the first time in its history. Improvements resulted in the dismissal of a major class action lawsuit concerning patient abuse and poor facility conditions that had been filed while still under state operation. The private operator was also able to significantly reduce waiting lists for patient admissions and shorten the average length of patient stays.</p>
<p>The Florida Legislature&rsquo;s Office of Program Policy Analysis and Government Accountability issued a 2010 report finding that the quality of care at the hospital was similar to two state-run facilities but had per-bed costs 6 to 14 percent lower. In fact, differences in cost and quality had previously been more pronounced, but Florida&rsquo;s state-run hospitals have improved considerably since privatizing that one facility. Introducing competition had a positive influence on costs and quality of care throughout the state hospital system.</p>
<p>State Sen. Robert Nichols, R-Jacksonville, is seeking to prevent the Health and Human Services Commission from finalizing a contract with Correct Care Recovery Solutions to take over hospital operations at Terrell, instead preferring to see the legislature take up the issue. And the<em> Morning Telegraph</em> recently editorialized that voters should want legislators to approve such privatization decisions since they &ldquo;can be held directly accountable.&rdquo;</p>
<p>It&rsquo;s neither realistic nor desirable to have state legislators add procurement and contract management to their job duties. Privatization is not an obstacle to accountability. In fact, privatization brings more accountability through implementing financial penalties for not meeting health care standards, and ultimately, through the ability to fire under-performers. In government-run hospitals the state is almost always in a position of overseeing itself, a major conflict of interest, and civil service rules can make it difficult to penalize poor job performance.</p>
<p>If the Health and Human Services Commission is able to finalize a contract that will ensure high quality of care at Terrell State Hospital at a reasonable cost, it should be afforded the discretion to do so.</p>
<p>Giving the legislature a platform to politicize the proposed contract would serve as an obstacle, not a boost, to improved patient care.</p>
<p><em>Leonard Gilroy is director of government reform at Reason Foundation. This article originally appeared in the <a href="http://www.tylerpaper.com/TP-Opinion/212546/terrell-state-hospital-could-benefit-from-privatization#.VMpgvP54qVg">Tyler Morning Telegraph</a>.</em></p>1014144@http://www.reason.orgTue, 03 Feb 2015 11:34:00 ESTleonard.gilroy@reason.org (Leonard Gilroy)Report Highlights Need for States to do Their Own Endangered Species Researchhttp://www.reason.org/blog/show/report-highlights-need-for-states-t
<p>One of the key conclusions that can be drawn from the <a href="http://naturalresources.house.gov/UploadedFiles/ESA_Peer_Review_Science-Staff_Report.pdf" target="_blank">recent report released</a> by the U.S. House Resources Committee&mdash;on the flawed science and lack of independent peer review used by the U.S. Fish and Wildlife Service to support listing species under the Endangered Species Act&mdash;is the need for states to have independent species research initiatives. As the report makes clear, the Fish and Wildlife Service has a strong bias in favor of listing species under the Act, even if species do not merit listing or if listing would not appreciably help the conservation of species, which results in the agency ignoring contrary evidence and skewing the peer review process. An effective way to counteract this, as Colorado and Texas have shown, is for states to fund and produce their own species research.</p>
<p>Almost all of the eighteen species profiled in the report have been listed as a result of the &ldquo;tidal wave&rdquo; of over 750 species that are in the process if being evaluated for listing under the Endangered Species Act as the result of the 2011 lawsuit settlement between the U.S. Fish and Wildlife Service and two groups, Wild Earth Guardians and the Center for Biological Diversity. Given the pressure the Service is under to list these species, coupled with the agency's institutional bias in favor of listing, both of which, as the recent report documents, lead to cutting corners and skewing data, it is all the more imperative for states to produce high quality data to counterbalance the rush to list species that may not merit the Endangered Species Act&rsquo;s protection.</p>
<p>Before looking into the broader issue of what to do about the Fish and Wildlife Service&rsquo;s biases, it bears taking a close look at five of the eighteen species detailed in the report, the Gunnison sage grouse and four species of Texas salamanders. Doing so provides an eye-opening look at how the Fish and Wildlife Service stacks the deck in order to list species under the Endangered Species Act (Please excuse the rather lengthy excerpts that are cited below, but this was done to provide a fuller sense of how the Service skews the process).</p>
<p>The report&rsquo;s section on the Gunnison sage grouse contains the following:</p>
<blockquote>
<p>According to the final rule, which was published November 11, 2014, five peer reviewers were solicited, all of whom responded. However, only four of the peer reviewers&rsquo; comments could be identified as such out of an assessed total of 36,171 public comments. Contrary to other peer reviews conducted by Region 6, the FWS did not post the names of the peer reviewers for its Gunnison sage-grouse decision to its Region 6 website.</p>
<p>The faculty biography for one of the scientists who served as a peer reviewer, Dr. Jessica Young, provides that she has &ldquo;document[ed] [the Gunnison Sage-grouse&rsquo;s] imperiled habitat and status.&rdquo; Indeed, Dr. Young&rsquo;s peer review states she had &ldquo;studied the biology and participated in conservation discussions about the Gunnison Sage-grouse . . . for over 20 years,&rdquo; and that her &ldquo;Ph.D. dissertation and resulting publications assisted in the grouse being recognized as a new species in 2000.&rdquo; Her work on the grouse is recognized by the FWS, which cites her studies nearly 100 in the proposed and final rules to support claims concerning the species&rsquo; taxonomy, behavior, and potential threats. Furthermore, Dr. Young&rsquo;s <em>curriculum vitae</em> notes that she currently serves as an international grouse specialist for the International Union for Conservation of Nature (&ldquo;IUCN&rdquo;), which publishes the IUCN Red List &ndash; a list that is frequently used by the FWS to evaluate the conservation status of plant and animal species.</p>
<p>Another peer reviewer, Dr. Matt Holloran, has studied various aspects of sage-grouses in Wyoming since 1996. His studies were approximately 60 times by the FWS in support of the proposed and final rules. In his peer review, Dr. Holloran states that &ldquo;additional information is required&rdquo; to support the &ldquo;conclusion that [Gunnison sage-grouse] should be listed as endangered.&rdquo;</p>
<p>The two other identified peer reviewers, Dr. Michael Phillips and Dr. Terry Messmer, were minimally cited (less than 10 times each) throughout the proposed and final rules for studies or research they had conducted or published. Dr. Phillips, an avian researcher with Colorado Parks and Wildlife, was cited only twice concerning an email exchange he held with the FWS regarding movement distance of sage-grouse in the Gunnison Basin. The FWS did not cite Dr. Messmer. In his peer review, Dr. Phillips was highly critical of the proposed rule stating &ldquo;concern[] about the frequent use of speculation and commentaries as empirical evidence.&rdquo; &ldquo;Given the flaws in this review,&rdquo; he concluded, &ldquo;[the FWS] do[es] not present a convincing argument that [the Gunnison sage-grouse] should be listed as endangered.&rdquo; Similarly, Dr. Messmer, a professor at Utah State University and a scientific advisor to the Utah Governor&rsquo;s Greater Sage-grouse Task Force, expressed concern about the proposed rules&rsquo; &ldquo;discussion of the biology and habitat used by Gunnison sage-grouse [being] based largely on greater sage-grouse literature rather than studies conducted in . . . Colorado and Utah.&rdquo;</p>
</blockquote>
<p>The four species of Texas salamanders in the House Resources Committee report are the Austin blind salamander, Jollyville Plateau salamander, Georgetown salamander and Salado salamander. In reference to them, the House Resources Committee report states:</p>
<blockquote>
<p>FWS initiated its peer review process for the listing decision in July 2012. As part of this process, FWS first solicited peer reviews &ldquo;of the portion of the listing decision that includes a discussion of the scientific information reviewed and our analysis (but not our conclusion regarding the status of the species or critical habitat boundaries).&rdquo; According to the peer review plan, FWS planned to send requests for peer reviews to three &ldquo;independent scientific reviewers with expertise in invertebrate ecology, conservation biology, and/or desert spring ecology.&rdquo;</p>
<p>In the final rule, the FWS stated it had actually sought peer reviews from &ldquo;22 knowledgeable individuals with scientific expertise concerning the hydrology, taxonomy, and ecology that is important to these salamander species.&rdquo; Thirteen of the individuals FWS contacted provided a response. Several of the individuals were taxonomists whose focus was to evaluate the FWS&rsquo; proposal in light of an unpublished study questioning whether the salamanders were actually unique species.</p>
<p>Because FWS received contradictory public comments and &ldquo;found new information relative to the listing determination,&rdquo; FWS solicited a second round of peer review. During the second round, FWS contacted 20 peer reviewers who were asked to evaluate only two issues: (1) salamander demographics and (2) urban development and stream habitat. Eight peer reviewers provided responses.</p>
<p>While the 13 first round responses and eight second round responses were posted to the online docket for this rulemaking on Regulations.gov, the peer reviewers&rsquo; names and identifying information were redacted. The redactions undermine the public&rsquo;s ability to hold FWS accountable for ensuring that the peer reviewers were independent. It also makes it impossible to discern whether the 20 peer reviewers FWS solicited for the second round represent a subset of the 22 peer reviewers solicited for the first round, and if so, why two of the original peer reviewers were later excluded.</p>
<p>It also appears that FWS explicitly asked the second round peer reviewers to focus on comments that disagreed with the FWS&rsquo; position. One anonymous second-round peer reviewer wrote: &ldquo;As per your email, my review is focused on &lsquo;significant public comments that disagree with the link we are making between watershed urbanization and salamander habitat degradation.&rsquo;&rdquo; It is unclear why the FWS would undergo a second round of peer review specifically focused on countering public comments that disagreed with FWS&rsquo; opinion.</p>
<p>In the final rule listing the species, FWS acknowledged that one reviewer believed the evidence supporting the uniqueness of one of the salamander species was &ldquo;weak but suggestive&rdquo; and admitted &ldquo;that the understanding of the taxonomy of these salamander species can be strengthened by further research.&rdquo;</p>
</blockquote>
<p>The question then turns to what should be done about the Fish and Wildlife Service&rsquo;s biases that can have significant impacts on whether and how species are listed and subsequently protected under the Endangered Species Act. One approach is to pass legislation to amend the Act, which the U.S. House of Representatives did in July when it passed, by a vote of 233-190, HR 4315, the 21st Century Endangered Species Transparency Act. <a href="http://naturalresources.house.gov/news/documentsingle.aspx?DocumentID=389093">According to the House Natural Resources Committee</a>, the Act would:</p>
<ul style="list-style-type: square;">
<li>
<blockquote>Require data used by federal agencies for ESA listing decisions to be made publicly available and accessible through the Internet, while respecting state data privacy laws and private property.</blockquote>
</li>
<li>
<blockquote>Require the federal government to disclose to affected states data used <em>prior</em> to an ESA listing decision and it would require the &ldquo;best available scientific and commercial data&rdquo; used by the federal government to incorporate data provided by states, tribes, and local county governments.</blockquote>
</li>
<li>
<blockquote>Require the U.S. Fish and Wildlife Service to track, report to Congress, and make available online the federal taxpayer funds used to respond to ESA lawsuits, the number of employees dedicated to ESA litigation, and attorneys&rsquo; fees awarded in the course of ESA litigation and settlement agreements.</blockquote>
</li>
<li>
<blockquote>Prioritize species protection and protect taxpayer dollars by placing reasonable caps on attorneys&rsquo; fees to make the ESA consistent with existing federal law. For example, the federal government limits the prevailing attorneys&rsquo; fees to $125 per hour in most circumstances, including federal suits involving veterans, Social Security, and disability. But under the ESA, attorneys are being awarded huge sums, in many cases, at a rate much as $600 per hour.</blockquote>
</li>
</ul>
<p>While the first two of these provisions in particular would most likely improve data used under the Endangered Species Act, it is necessary for high quality data to be available in the first place. In many ways, states are best positioned to provide such data because they often have the necessary resources and expertise to fund and carry out research. Two states that have had success doing this are Colorado and Texas.</p>
<p>One example involves the black-tailed prairie dog in Colorado. In 1998, the U.S. Fish and Wildlife Service received two petitions to list the black-tailed prairie dog across hundreds of millions of acres in eleven states (Arizona, New Mexico, Texas, Oklahoma, Colorado, Kansas, Nebraska, Wyoming, North Dakota, South Dakota and Montana). One petition was from the National Wildlife Federation, the other from the Biodiversity Legal Foundation, the Predator Project and a private citizen. Based on the petitions, the <a href="http://ecos.fws.gov/docs/federal_register/fr3537.pdf" target="_blank">Fish and Wildlife Service estimated</a> the prairie dog occupied 93,000 acres in Colorado.</p>
<p>Officials and experts in Colorado were very sure this was a massive underestimate, but they had no hard data for the entire state. So Colorado decided to gather its own data in an effort to avert listing. According to Greg Walcher, who at the time was Executive Director of the Colorado Department of Natural Resources:</p>
<blockquote>
<p>Colorado had good reason not to trust the federal data, which came from the National Wildlife Federation&rsquo;s listing petition, had been changed several times with different petitions, and were based entirely on computer modeling. So the State commissioned an aerial survey to obtain actual counts of both the prairie dog numbers and their occupied habitat. For around $75,000 and about 3 months, we obtained specific information proving that there were thousands of times more animals than the federal estimate, and that they occupied more land in Colorado alone than the petitioners claimed for the entire country. Together with the State&rsquo;s threatened lawsuit if an endangered listing ignored this data, the USFWS service was persuaded to issue instead a &ldquo;warranted but precluded&rdquo; finding &ndash; a temporary relief at best.</p>
</blockquote>
<p>In response to the proposed listing, Colorado reportedly <a href="http://www.livestockweekly.com/papers/99/11/25/whlcolopdogs.asp" target="_blank">submitted comments</a> to the Fish and Wildlife Service in 1999 signed by Greg Walcher, Ken Salazar, the state Attorney General who would go on to be Interior Secretary during the Obama administration, and Don Ament, the Agriculture Commissioner, in which they stated:</p>
<blockquote>
<p>The anecdotal information that does exist indicates that black-tailed prairie dogs are widely distributed and common throughout their historic range, and that is particularly the case in eastern Colorado&hellip;Under the circumstances, and given the obvious impact to its citizens, it appears Colorado would have little choice than to move forward with litigation to protect its interests should the pending petition ultimately result in a final rule listing the black-tailed prairie dog as &ldquo;threatened.&rdquo;</p>
</blockquote>
<p>In February 2000, the Fish and Wildlife Service found the prairie dog <a href="http://ecos.fws.gov/docs/federal_register/fr3537.pdf" target="_blank">warranted listing but doing so was precluded</a> by other higher priority endangered species issues. As Greg Walcher points out, Colorado knew this was a temporary reprieve and that the Service and the groups that submitted listing petitions would continue to try to get the black-tailed prairie dog listed.</p>
<p>So Colorado conducted several surveys, <a href="http://cpw.state.co.us/Documents/WildlifeSpecies/SpeciesOfConcern/BlackTailedPrairieDog/PDF/Entire_Report.pdf" target="_blank">the first of which was published in October 2000</a> and consisted of field surveys that found black-tailed prairie dogs occupied 314,114 acres in the state. But Colorado decided to buttress this survey with the more extensive and comprehensive scientific aerial survey in 2002 that Greg Walcher referenced. The results, which were <a href="http://cpw.state.co.us/Documents/WildlifeSpecies/SpeciesOfConcern/BlackTailedPrairieDog/PDF/PrairieDogColony.pdf" target="_blank">published in a peer reviewed journal</a>, found the black-tailed prairie dog occupied 631,102 acres in Colorado, which was an almost sevenfold increase from the Fish and Wildlife Service&rsquo;s estimate.</p>
<p>In 2006 and 2007, Colorado undertook another aerial survey, this one with the aim of ground-truthing aerial data and determining which prairie dog colonies were occupied and which were unoccupied in order to arrive at a more accurate count. As with the previous survey, this one was <a href="http://cpw.state.co.us/Documents/WildlifeSpecies/SpeciesOfConcern/BlackTailedPrairieDog/PDF/BTPDAerialInventory08.pdf" target="_blank">also published in a peer reviewed journal</a>, but it found 788,674 acres occupied by the prairie dog, or 8.5 times the estimate the Fish and Wildlife Services was going to use to list the species. The authors of the study conclude, in the understated style typical for scientists writing in scholarly journals, &ldquo;These results are useful to state and federal agencies and other conservation partners in determining the condition of the species when conducting status reviews.&rdquo; Indeed.</p>
<p>Due to surveys by Colorado and other states, the Fish and Wildlife Service issued another finding on the black-tailed prairie dog because findings of &ldquo;warranted but precluded&rdquo; are reevaluated annually and the petitions to list are treated as still active. <a href="http://www.gpo.gov/fdsys/search/citation.result.FR.action?federalRegister.volume=2004&amp;federalRegister.page=51217&amp;publication=FR" target="_blank">In 2004, the Service found the prairie dog did not warrant listing</a> because state-based surveys, such as those carried out by Colorado, showed the prairie dog was far more common than originally believed.</p>
<p>Not surprisingly, a number of groups that specialize in filing lawsuits under the Endangered Species Act, but doing no meaningful actual conservation work, were very unhappy with the Fish and Wildlife Service&rsquo;s decision. So in 2007 they, led by Forest Guardians (which later changed its name to Wild Earth Guardians), filed a legal complaint and yet another petition to list the black-tailed prairie dog. In 2009, the Fish and Wildlife Service <a href="http://www.gpo.gov/fdsys/search/citation.result.FR.action?federalRegister.volume=2009&amp;federalRegister.page=63343&amp;publication=FR" target="_blank">again found the black-tailed prairie dog did not warrant listing</a>, in large part because of the surveys and conservation efforts carried out by states.</p>
<p>One of the ironies of the 1999 petition to list the black-tailed prairie dog is that it caused harm to the species. &ldquo;The petition has created difficulties for us,&rdquo; said Dennis Flath, a biologist with the Montana Department of Fish, Wildlife and Parks, <a href="https://www.hcn.org/issues/160/5167" target="_blank">in an article in <em>High Country News</em></a>. &ldquo;Now private landowners don&rsquo;t want us to find out if there are any prairie dogs. They want to get rid of prairie dogs quickly, while they have the opportunity,&rdquo; before listing occurs. The Montana Department of Agriculture would typically get 20 or so requests annually to help ranchers poison prairie dogs, which are perceived as competing with cattle for grass. Following the petition, however, the Department had already received approximately 30 such requests by March 1999.</p>
<p>Yet the National Wildlife Federation, which engages almost exclusively in &ldquo;paper&rdquo; conservation (e.g., lobbying, lawsuits, and press releases), did not grasp the reality of how the Endangered Species Act&rsquo;s penalty-based approach backfires and causes harm to species. &ldquo;This [petition] is the best possible use of the Endangered Species Act,&rdquo; <a href="http://www.nwf.org/news-and-magazines/national-wildlife/news-and-views/archives/1998/nwf-members-at-work-oct-nov-1998.aspx" target="_blank">said then-Federation President Mark Van Putten</a> in 1998. &ldquo;If we all work together to make common-sense changes now, we can head off real problems later.&rdquo; Van Putten also said, &ldquo;Anyone who tries to turn this into a political football by stirring up fear and opposition is not looking out for the long-term welfare of this ecosystem or the people who depend on it.&rdquo; It is ironic and telling that Van Putten equated states&rsquo; opposition to listing, which resulted in much more high quality research and data, as anti-conservation and anti-science.</p>
<p>Another state that has taken an innovative and successful approach to dealing with the Endangered Species Act is Texas. Over the past ten years Texas, under the leadership of Susan Combs, first as Agriculture Commissioner and for the past eight years as Comptroller, (but has been succeeded as Comptroller in January 2015 by Glen Hegar), has carried out a number initiatives, including state-based research on species that are proposed and candidates for listing. The signal success story so far is preventing the dunes sagebrush lizard from being listed, which the Fish and Wildlife Service proposed to list in 2010. A listing would have imposed significant costs on the oil, gas and agriculture industries because the lizard&rsquo;s Permian Basin habitat in eastern New Mexico and western Texas produces 15% of U.S. oil, 5% of U.S. gas, and has significant amounts of agriculture.</p>
<p>In response, Texas provided funding to Texas A&amp;M University to conduct surveys for the lizard in June 2011. The results, which were <a href="http://agrilifecdn.tamu.edu/fitzgerald/files/2012/07/TX-lizard-surveys_2011-report.pdf" target="_blank">published in a report</a>, included an additional 28 lizard populations in Texas, which was a substantial increase from the 3 Texas populations U.S. Fish and Wildlife Service cited in the proposed listing. These surveys were incorporated into the innovative conservation plan formulated by Texas for the lizard. When the federal government decided in 2012 that listing the dunes sagebrush lizard under the Endangered Species Act was not warranted, <a href="http://www.doi.gov/news/pressreleases/Landmark-Conservation-Agreements-Keep-Dunes-Sagebrush-Lizard-off-the-Endangered-Species-List-in-NM-TX.cfm" target="_blank">it cited</a> the Texas Conservation Plan as a key factor in its decision.</p>
<p>As the examples of Colorado and Texas demonstrate, high quality state-based research and data can have significant impacts on whether species are listed under the Endangered Species Act. Unfortunately, the issue of the federal government using shoddy data in support of listing species is not a new phenomenon. In fact, it has been going on for the entire 41-year history of the Endangered Species Act, and in some instances even longer. This is the case for many of the species that were listed under the Endangered Species Act&rsquo;s two predecessors; the 1966 Endangered Species Preservation Act and the 1969 Endangered Species Conservation Act. Many species listed under these two predecessor acts were carried over to the Endangered Species Act of 1973 with no substantive examination of their status, including whether they merited listing under the ESA.</p>
<p>For example, the American alligator is one of the species that to this day is cited by advocates of the ESA as one of the Act&rsquo;s foremost success stories, despite that it never should have been carried over to the ESA because by 1973 its population was too abundant&mdash;almost 734,000&mdash;and healthy (increasing, actually) to merit listing. But by 1973 the alligator, due to vigorous public relations and lobbying efforts by the federal government and environmental pressure groups (especially the National Audubon Society), was one of the &ldquo;charter&rdquo; members (the term used then-Assistant Secretary for Fish, Wildlife and Parks, Nathaniel Reed) of the endangered species program and lobbying campaign that, because it brooked no dissent, bore more of a resemblance to a crusade than a scientifically based inquiry (a detailed profile of the Alligator and its regulatory history is available <a href="http://reason.org/files/american_alligator_profile.pdf" target="_blank">here</a>).</p>
<p>Other examples are the Hawaiian hawk, Tinian monarch (a bird from the tropical Pacific island of Tinian), and three other birds from the tropical Pacific islands of Palau (Palau owl, Palau ground dove, and Palau fantail flycatcher). Detailed profiles of all these species are <a href="http://reason.org/news/show/endangered-species-act-profiles" target="_blank">available here</a>.</p>
<p>As documented in the profiles of these species, there are a number of factors that explain why the Fish and Wildlife Service uses shoddy data, misrepresents existing data, and ignores contrary data and opinions in order to justify listing species. First is a combination of a self-selecting process and politics. Those who work for the Fish and Wildlife Service tend to have a strong bias in favor of the Act, which includes a belief that the Endangered Species Act&rsquo;s penalty-based approach to conserving imperiled species is productive. In turn, this leads to an institutional bias in favor of listing species, including ignoring contrary data and skewing existing data in support of listing. Second is the possibility that some of those who make listing decisions are lazy and incompetent. But this begs the question why the Fish and Wildlife Service, which is staffed by many competent biologists, would not put more effort in to acquiring higher quality data and would also so badly misrepresent existing data. Third is the Service has limited resources with which to evaluate the status of species. But this, too, begs the question of why in those instances when the agency devotes substantial resources to the listing of species, such as in the case of the Gunnison sage grouse, the Service clearly skews the process in favor of those data and scientists that support listing.</p>
<p>The use and misuse of data is an issue that has been a problem since before the Endangered Species Act&rsquo;s passage in 1973, and it will continue to be a problem for the foreseeable future. While a step in the right direction is to amend the Act to require the Fish and Wildlife Service and National Marine Fisheries Service to incorporate state, municipal and tribal data, high quality data must be available in the first place so that it can be supplied to these agencies. As Colorado and Texas have shown, a highly successful and productive way to deal with this problem is for states to take the lead in funding, producing and distributing high quality data on endangered and potentially endangered species.</p>1014116@http://www.reason.orgMon, 05 Jan 2015 07:30:00 ESTinfo@reason.org (Brian Seasholes)Plastic Bag Bans Are a Not a Panacea for Environmental Illshttp://www.reason.org/news/show/plastic-bag-bans-are-a-not-a-panace
Albuquerque Journal <p>Over 200 municipalities in the United States, including two in New Mexico &ndash; Santa Fe and Silver City &ndash; have banned the distribution of lightweight plastic shopping bags. Proponents of these bag bans claim they will reduce litter and protect the marine environment, diminish our consumption of resources and emissions of greenhouse gases, reduce waste and save taxpayers&rsquo; money.</p>
<p>Unfortunately, for those who see banning plastic grocery bags as a panacea, a recent report for the Reason Foundation shows that all these claims are false.&nbsp;</p>
<p>Authoritative studies show that plastic bags constitute less than 1 percent of visible litter in U.S. cities. The presence of plastic bags in trees and on the ground signifies that a community has a litter problem. The appropriate response is to reduce and ameliorate that problem through education and other initiatives &ndash; not to ban plastic bags.&nbsp;</p>
<p>Members of some pressure groups claim that plastic bags kill large numbers of marine animals. Even for bags distributed in coastal cities, that claim is simply false.&nbsp;</p>
<p>As David Santillo, a senior biologist with Greenpeace, told The Times of London: &ldquo;It&rsquo;s very unlikely that many animals are killed by plastic bags. The evidence shows just the opposite &hellip; . On a global basis, plastic bags aren&rsquo;t an issue.&rdquo;</p>
<p>Because they are so strong and light, plastic shopping bags can actually reduce the amount of waste that ends up in landfills.</p>
<p>About 80 percent of all grocery bags in the U.S. are made from lightweight plastic but constitute only 0.4 percent by weight of all waste sent to landfills.</p>
<p>Paper bags, which account for most of the remaining 20 percent of grocery bags used, generate the same amount of waste (0.4 percent of the total) because each bag is far heavier.</p>
<p>New Mexico&rsquo;s plastic bag bans have likely increased the amount of waste produced as people switch to paper, which would actually increase the costs of municipal solid waste disposal.</p>
<p>Some alternative bags appear to be superior to lightweight plastic on some environmental measures, such as use of energy and emissions of greenhouse gases. But that is true only if those bags are reused a sufficient number of times (ranging from six to 30 or more, depending on the type of bag). In practice, households do not typically reuse their bags enough to achieve those gains.</p>
<p>At actual reuse rates, lightweight plastic bags result in about half the energy consumption and greenhouse gas emissions of alternative bags, whether those alternatives are paper or reusable.</p>
<p>Likewise, at actual reuse rates, all alternative bags are associated with greater water use.</p>
<p>Reusable bags are the worst, resulting in the use of at least 10 times as much water as lightweight plastic bags &ndash; if households wash their bags regularly. And such washing is strongly advised: Studies show that about half of unwashed bags contain potentially dangerous germs; meanwhile, failure to clean reusable bags regularly has resulted in several instances of serious illness.</p>
<p>So, banning lightweight plastic bags likely increases energy use, water use and emissions of greenhouse gases, but does not substantially reduce waste or litter, or the cost of associated municipal waste and litter collection.</p>
<p>If communities are concerned about litter, the best solution is likely a campaign directly addressing that problem.</p>
<p>Advocates of banning plastic grocery bags, while perhaps well-intentioned, are actually harming the environment, raising consumer costs and reducing personal freedom.</p>
<p>That sounds like a bad deal to me.</p>
<p><em>Julian Morris is vice president of research at Reason Foundation. This article originally appeared in the <a href="http://www.abqjournal.com/466129">Albuquerque Journal</a>.</em></p>1014035@http://www.reason.orgTue, 30 Sep 2014 12:18:00 EDTjulian.morris@reason.org (Julian Morris)Fishy Business in Montanahttp://www.reason.org/blog/show/fishy-business-in-montana
<p>In a <a href="http://www.theprairiestar.com/news/regional/can-montana-s-arctic-grayling-hang-on/article_0c8c88d2-f7ca-11e3-bc7b-001a4bcf887a.html">couple of months</a>, the federal government will decide whether to list the Montana population of the Arctic grayling (a freshwater relative of the salmon, but more the size of a trout) under the Endangered Species Act.&nbsp; The Act is&nbsp;<a href="http://www.theprairiestar.com/news/regional/can-montana-s-arctic-grayling-hang-on/article_0c8c88d2-f7ca-11e3-bc7b-001a4bcf887a.html">being portrayed</a> as necessary to ensure the grayling's survival.&nbsp; Sadly, the Endangered Species Act has harmed conservation of the fish.&nbsp; Dialing the clock back almost twenty years shows how this occurred.</p>
<p>In 1995, there was a great deal of interest in reforming the Endangered Species Act, and Congress held a number of hearings.&nbsp; At one of those hearings, on May 25, 1995, David Cameron, an emeritus professor of biology and genetics at Montana State University, <a href="https://archive.org/stream/endangeredspecie03unit/endangeredspecie03unit_djvu.txt">testified about his experience trying to conserve the grayling</a> in Montana.&nbsp; Cameron was no ordinary pointy-headed academic because he also managed the 45,000 acre cattle and sheep ranch that had been in his family for decades.&nbsp; The Cameron family was widely known as outstanding conservationists.&nbsp; For example, David's father reintroduced pronghorn (commonly known as pronghorn antelope).</p>
<p>Following this long and proud family tradition of conservation, David was keen to reintroduce grayling because he knew the species was rare in Montana and needed a boost.&nbsp; It turned out the family ranch had ideal habitat, and David was all set to proceed with the reintroduction when he learned the U.S. Fish and Wildlife Service was considering listing the fish under the Endangered Species Act.</p>
<p>Given that the Endangered Species Act works against landowners conserving imperiled species, David Cameron's testimony before Congress about his experience with the grayling is just as relevant today as it was in 1995:</p>
<p>"People knowledgeable about the heavy-handed approach of the Feds counseled me to forget the [grayling reintroduction] experiment.&nbsp; We might lose the right to graze our pastures.&nbsp; My recollections of the horror stories in stockmen's journals about the hazards of hosting an endangered species didn't help, and I sadly bowed out.&nbsp; It seemed a good deed would probably go punished, and life had sufficient complications without Federal agents giving orders.</p>
<p>"And I simply can ask you, ladies and gentlemen, how many times do you think this sort of thing has been repeated throughout the country?&nbsp; How often have people felt terrified by the consequences of supporting some poor creature on their habitat that they are responsible for managing?&nbsp; I think it is more often than you may think.&nbsp; And it is just one more step to proceed from failing to do a good deed to worrying about, hey, I had better get rid of it before somebody declares that it is an endangered species.&nbsp; And I know that has gone on.</p>
<p>"Reasonable property owners are frightened and angry at you, the government, for managing with brick bats.&nbsp; Why does the hosting of a rare and troubled creature have to be a threat to their livelihood rather than a source of pride and pleasure?&nbsp; It doesn't."</p>
<p>Sound words, indeed, and a lesson to those who think the Endangered Species Act is good for conservation.&nbsp; Were it not for this country's penalty-based approach to conserving endangered species, the Montana grayling might well have much brighter prospects today, including not being listed under the Endangered Species Act.</p>1013934@http://www.reason.orgThu, 31 Jul 2014 07:19:00 EDTinfo@reason.org (Brian Seasholes)New Landowner-friendly Endangered Species Policy: Not so New, Not so Friendlyhttp://www.reason.org/blog/show/innovative-endangered-species-polic
<p>The U.S. Fish and Wildlife Service <a href="http://www.fws.gov/endangered/improving_ESA/pdf/Prelisting%20policy%20news%20release%20FINAL%20FORMATTED.pdf">recently announced</a> a proposed new initiative, called the Prelisting Conservation Policy, that appears to make the Endangered Species Act more landowner-friendly.&nbsp; In reality, the Policy, like other purportedly landowner-friendly initiatives that preceded it, does little of substance to lessen the regulatory burden on landowners because it leaves untouched the Act's draconian penalties ($100,000 fine and/or 1 year in jail for harming a single species or even its habitat).</p>
<p>On the surface, the Prelisting Conservation Policy looks like a good deal.&nbsp; <a href="http://www.fws.gov/endangered/improving_ESA/pdf/Prelisting%20policy%20news%20release%20FINAL%20FORMATTED.pdf">According to the Fish and Wildlife Service</a>:</p>
<p>"Under the proposed policy, landowners could obtain credits for current efforts that benefit declining species. These conservation credits could later be redeemed to offset or mitigate actions that are detrimental to a species were it to subsequently be listed under the Act. The credits may also be traded or sold to a third party."</p>
<p>And based on how Fish and Wildlife's leadership is enthusiastically pitching the proposed policy, it appears to move the conflict-ridden Endangered Species Act in a positive direction.&nbsp; <a href="http://www.fws.gov/endangered/improving_ESA/pdf/Prelisting%20policy%20news%20release%20FINAL%20FORMATTED.pdf">Dan Ashe, Director of the Fish and Wildlife Service, said</a>:</p>
<p>&ldquo;The proposed policy is a win-win for people and for wildlife species that are in decline but not yet listed as threatened or endangered.&nbsp; This smart approach expands on our existing efforts to work cooperatively with landowners to save the great landscapes of America and both the wildlife and the way of life of Americans that depend on them. By incentivizing early voluntary conservation efforts, this policy demonstrates our continued commitment to innovation and flexibility in implementing the Endangered Species Act.&rdquo;</p>
<p>So, what's the problem?&nbsp; After all, this looks like a good deal for species and landowners: species get additional conservation, and landowners potentially avoid getting whacked by the Endangered Species Act.</p>
<p>The problem is that the proposed Prelisting Conservation Policy is another in a long line of so-called landowner-friendly reforms (such as No Surprises, Candidate Conservation Agreements and Safe Harbors) that mask the central problem with the Endangered Species Act by leaving intact the Endangered Species Act's massive penalties.&nbsp; These penalties create strong incentives for landowners to destroy habitat in efforts to deny refuge to species, and as a result the Act may well be doing more harm than good.&nbsp; Another problem is these superficial reforms have been done administratively, not codified in to law, and so can be altered at the whim of Fish and Wildlife.</p>
<p>Some of the country's leading legal scholars provide some much-needed insight in to the true nature of these reforms.&nbsp;&nbsp;<a href="http://www.jstor.org/discover/10.2307/1229299?uid=3739704&amp;uid=2129&amp;uid=2&amp;uid=70&amp;uid=4&amp;uid=3739256&amp;sid=21104372202547">Barton Thomson of the Stanford University Law School commented on the No Surprises Policy</a> (which was unveiled in the mid-1990s by then-Interior Secretary, Bruce Babbitt):</p>
<p>"Through its no surprises policy, the FWS tries to create a form of property right to insure property owners against future regulatory activities&hellip;Absent explicit statutory (and preferably constitutional) guarantees, however, property owners will be wary of the promised insurance. Even if property owners trusted the government and its no surprises policy, they would still have grounds for unease. Under the no surprises policy, the FWS reserves the right to require additional mitigation in &ldquo;extraordinary circumstances&rdquo; (although the mitigation cannot involve additional payments or involve land parcels set aside for development or land management under the original terms of the HCP)."</p>
<p>As Professor Thompson alludes to, &ldquo;extraordinary circumstances&rdquo; can apply to species and land not covered in the Habitat Conservation Plan (federally approved mitigation schemes in which landowners put off limits some of their land in order for permission to use the rest of their land for activities such as farming and cutting trees). Given the ever-growing list of endangered species, the prospect of an extraordinary circumstance is very real for landowners who have signed Habitat Conservation Plans.</p>
<p>Professor Thompson had<a href="http://www.jstor.org/discover/10.2307/1229299?uid=3739704&amp;uid=2129&amp;uid=2&amp;uid=70&amp;uid=4&amp;uid=3739256&amp;sid=21104372202547"> this to say about Safe Harbors</a>, another of Secretary Babbitt's reforms:</p>
<p>&ldquo;While a growing number of property owners are finding safe harbor agreements attractive, the uncertainty and distrust created by prior ESA implementation has hindered the government&rsquo;s attempts to market the safe harbor concept."<a href="#_edn1" name="_ednref1"></a></p>
<p>"A proactive regulatory scheme is not, however, a substitute for compensation. Absent broader compensation than is provided today, even a proactive scheme is likely to encounter evasive habitat destruction, since such a scheme would not eliminate the incentive to destroy habitat, but simply narrow the window of opportunity."</p>
<p>Richard Epstein, of New York University and the University of Chicago, <a href="http://press.uchicago.edu/ucp/books/book/distributed/S/bo3646095.html">commented on landowner-friendly initiatives</a>, which he refers to as "covenants":</p>
<p>"[T]hese covenants are not universal in scope, and they require confidence that they will be respected over time when the remedies for government breach are uncertain at best. Absent strong ownership rights, the unmistakable incentive remains: destroy habitat now in order to preserve freedom of action later."</p>
<p>Jonathan Adler, of Case Western University, who has written extensively on the Endangered Species Act&rsquo;s adverse effects on species, has&nbsp;<a href="http://www.american.com/archive/2011/october/the-leaky-ark">the following observation</a> about reforms touted as landowner-friendly:</p>
<p>"Recent administrations have sought to offset these effects through various programs and initiatives designed to encourage voluntary conservation efforts and provide landowners with greater regulatory certainty. Yet such regulatory assurances and 'safe harbors' can only go so far to reduce the economic consequence of species listings for private landowners, and there is only so much flexibility in the law itself. Such reforms may ameliorate the anti-environmental incentives created by the Act, but they do not eliminate them."</p>
<p>Which brings us back to the latest of these reforms, the proposed Prelisting Conservation Policy.&nbsp; As is clear from the analysis of these three legal scholars about previous reforms, the reality of the Prelisting Conservation Policy is far different from how it's being touted for a very simple reason: the Policy leaves untouched the Act's massive penalties, which create overwhelming disincentives for landowners to harbor species.</p>
<p>Layering incentives, and so-called landowner-friendly initiatives like the Prelisting Conservation Policy, on top of the Endangered Species Act&rsquo;s existing highly punitive structure is like putting a shiny, new facade on a house with an unsound foundation and then claiming the house is as good as new. Any serious discussion of reforming the Endangered Species Act must distinguish between disincentives and incentives, and fix the disincentives before adding incentives. The central problem with the Endangered Species Act is not a lack of incentives, but rather the presence of overwhelming disincentives</p>
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<p>&nbsp;</p>1013938@http://www.reason.orgTue, 22 Jul 2014 13:30:00 EDTinfo@reason.org (Brian Seasholes)Endangered Species and the Export-Import Bankhttp://www.reason.org/blog/show/endangered-species-and-the-export-i
<p>In an interesting twist, the Endangered Species Act may prevent the U.S. government from subsidizing an iron ore mine in Australia.&nbsp; Three U.S. environmental pressure groups <a href="http://www.mondaq.com/x/327814/Mining/There+May+Be+Trouble+Ahead">are challenging</a> the decision by the U.S. Export-Import Bank to provide a loan to the Roy Hill iron ore mine project in Western Australia.&nbsp; If the challenge is successful, the loan may be withdrawn.</p>
<p>The link between the Endangered Species Act and the Export-Import Bank is that under the Act federal agencies are required to assess whether their actions will negatively impact endangered and threatened species, including the 628 foreign species currently listed.&nbsp; If there are negative impacts, then the proposed action, such as loan for the iron mine, can be terminated for being in violation of the Act.&nbsp; Several environmental pressure groups claim the port being built by the mine's owners to export the iron ore will negatively impact a number of endangered species, including<a href="http://www.theguardian.com/business/2013/dec/24/hancock-mine-call-to-reverse-694m-us-loan-over-environmental-fears"> sea turtles, the saltwater crocodile and dugong</a> (a relative of the manatee).</p>
<p>The Export-Import Bank approved the loan because the mine's owners have agreed to purchase U.S. mining equipment, such as giant dump trucks from Caterpillar and rail equipment from General Electric, and this is supposedly good for the U.S. economy.&nbsp; In reality, the Export Import Bank is a prime example of corporate welfare, as Reason has detailed&nbsp;<a href="http://reason.com/blog/2014/04/10/mike-lee-end-the-ex-im-bank-because-of-c">here</a> and <a href="http://reason.com/blog/2014/04/21/a-moral-case-against-the-ex-im-bank-once">here</a>, as well as cronyism because powerful, politically connected companies tilt the process in their favor to the detriment of less powerful companies.&nbsp; In the case of the Australian mine, Cliffs Natural Resources, which owns four iron ore mines in Minnesota and Michigan, opposed the Export-Import Bank loan because it would undercut their operations and&nbsp;<a href="http://www.prairiebizmag.com/event/article/id/15745/">cost an estimated $1.8 billion to the U.S. iron ore industry</a> over the eight-year life span of the loan.&nbsp; Such is the zero-sum game of the Export-Import Bank and the government picking winners instead of the marketplace.</p>
<p>If projects like the Australian mine are such good opportunities for U.S. corporations to make money, then let them assume the risks, not U.S. taxpayers who are on the hook if Export Import Bank loans go bad.&nbsp; It's also strange that the $694 million Export Import Bank loan is being&nbsp;<a href="http://www.mondaq.com/x/327814/Mining/There+May+Be+Trouble+Ahead">portrayed by mine proponents</a> as jeopardizing the future of the mine, when it's only a relatively small part of the $7 billion the mine's owners are trying to raise.</p>
<p>With the Export Import Bank's charter due to expire in September, there is increasing pressure to abolish the Bank from across the political spectrum, including Republicans like <a href="http://blogs.wsj.com/washwire/2014/07/14/house-republicans-to-huddle-tuesday-on-export-import-bank/">Representative Jeb Hensarling of Texas</a> and <a href="http://reason.com/reasontv/2014/07/11/sen-mike-lee-on-the-importance-of-primar">Senator Mike Lee of Utah</a>,&nbsp; to Democrats such as <a href="http://cei.org/content/ten-reasons-abolish-export-import-bank">Senator Elizabeth Warren of Massachusetts</a>, and <a href="http://cei.org/content/ten-reasons-abolish-export-import-bank">Senator Bernie Sanders of Vermont</a>, who is an Independent but usually votes with Democrats.&nbsp; While opposition to the Export-Import Bank tends to come from those against of corporate welfare, such as <a href="http://dailysignal.com/2014/06/27/ralph-nader-calls-abolishment-ex-im-bank/">Ralph Nader</a>, and fiscal conservatives, including a <a href="http://americansforprosperity.org/newsroom/afp-leads-broad-coalition-standing-against-the-export-import-bank">coalition led by Americans for Prosperity</a>, the loan for the Australian iron mine shows that opposition can come from unusual sources, including environmental pressure groups wielding the much-feared Endangered Species Act.</p>1013932@http://www.reason.orgThu, 17 Jul 2014 11:53:00 EDTinfo@reason.org (Brian Seasholes)Sasha Volokh on Today's SCOTUS Decision in Harris v. Quinn on Mandatory Government Union Contributionshttp://www.reason.org/blog/show/volokh-scotus-union-dues
<p>Sasha Volokh has a <a href="http://reason.org/news/show/scotus-harris-public-union-dues">new article on Reason.org</a> analyzing the U.S. Supreme Court's decision today in <em>Harris v. Quinn</em> regarding mandatory public employee union contributions. Volokh finds that while the opinion's bare holding is fairly narrow, it may foreshadow a possible future overruling of the 1977 decision that originally allowed unions to take compulsory dues from non-members for non-political purposes.</p>
<p>Here's an excerpt:</p>
<blockquote>On June 30, 2014, the Supreme Court handed down its decision in <em>Harris v. Quinn</em>. Pamela Harris and several others are &ldquo;personal assistants&rdquo; under the Rehabilitation Program or Disabilities Program&mdash;two programs, funded by federal Medicaid funds administered by the state of Illinois, that pay for in-home services for people with disabilities. The purpose of the program is to prevent people from having to go into a nursing home if they don&rsquo;t need do; many personal assistants&mdash;including Harris herself&mdash;provide services at home for disabled family members.<br /><br />Under the terms of the program, a personal assistant is formally an &ldquo;employee&rdquo; of the disabled person. Disabled persons (defined as &ldquo;customers&rdquo; in the law) choose their own assistants, determine the scope of services to be delivered, and can dismiss their assistants if they so desire. The state&rsquo;s role is to set some basic employment qualifications, mandate an annual performance review by the customer, and mediate conflicts between customers and assistants&mdash;and, most importantly, to pay the personal assistant an amount comparable to what the relevant services would cost in an institution.<br /><br />In light of the state&rsquo;s minimal control over personal assistants, the Illinois State Labor Relations Board held in 1985 that personal assistants weren&rsquo;t state employees. But Governor Rod Blagojevich reversed the result by executive order in 2003, and the Illinois legislature codified that soon afterwards. Now personal assistants are considered &ldquo;public employees&rdquo;&mdash;but &ldquo;[s]olely for the purposes of coverage under the Illinois Public Labor Relations Act.&rdquo; SEIU Healthcare Illinois &amp; Indiana was designed as the personal assistants&rsquo; exclusive collective bargaining representative, and pursuant to a collective bargaining agreement with Illinois, personal assistants who didn&rsquo;t join the union still had to pay a &ldquo;fair share&rdquo; of the union dues to cover collective-bargaining expenses. (This share is automatically deducted from the Medicare money that personal assistants get from the state.)<br /><br />Harris and others challenged the fair-share provision under the First Amendment, charging that they shouldn&rsquo;t be required to pay a fee to a union they don&rsquo;t support.<br /><br />The Supreme Court agreed, in an opinion (written by Justice Alito) that, by its terms, only applies to personal assistants. So the bare holding of the opinion is fairly narrow. But the opinion may be more important than its bare holding, to the extent that it portends a possible future overruling of <em>Abood v. Detroit Board of Education</em>, the 1977 decision that allowed compulsory dues to public-employee unions for non-political purposes. To see how the Court got to this result, it&rsquo;s important to understand a few earlier opinions.</blockquote>
<p>Read the rest of the article <a href="http://reason.org/news/show/scotus-harris-public-union-dues">here</a>. Volokh's other legal analyses written for Reason Foundation are <a href="http://reason.org/authors/show/alexander-volokh">available here</a>.</p>1013911@http://www.reason.orgMon, 30 Jun 2014 16:37:00 EDTleonard.gilroy@reason.org (Leonard Gilroy)Did the Supreme Court Just Signal Mandatory Union Dues Will Become a Thing of the Past for Public Sector Employees?http://www.reason.org/news/show/scotus-harris-public-union-dues
<p>On June 30, 2014, the Supreme Court handed down its decision in <em>Harris v. Quinn</em>. Pamela Harris and several others are &ldquo;personal assistants&rdquo; under Illinois' Rehabilitation Program or Disabilities Program&mdash;two programs, funded by federal Medicaid funds administered by the state of Illinois, that pay for in-home services for people with disabilities. The purpose of the program is to prevent people from having to go into a nursing home if they don&rsquo;t need to; many personal assistants&mdash;including Harris herself&mdash;provide services at home for disabled family members.</p>
<p>Under the terms of the program, a personal assistant is formally an &ldquo;employee&rdquo; of the disabled person. Disabled persons (defined as &ldquo;customers&rdquo; in the law) choose their own assistants, determine the scope of services to be delivered, and can dismiss their assistants if they so desire. The state&rsquo;s role is to set some basic employment qualifications, mandate an annual performance review by the customer, and mediate conflicts between customers and assistants&mdash;and, most importantly, to pay the personal assistant an amount comparable to what the relevant services would cost in an institution.</p>
<p>In light of the state&rsquo;s minimal control over personal assistants, the Illinois State Labor Relations Board held in 1985 that personal assistants weren&rsquo;t state employees. But Governor Rod Blagojevich reversed the result by executive order in 2003, and the Illinois legislature codified that soon afterwards. Now personal assistants are considered &ldquo;public employees&rdquo;&mdash;but &ldquo;[s]olely for the purposes of coverage under the Illinois Public Labor Relations Act.&rdquo; SEIU Healthcare Illinois &amp; Indiana was designated&nbsp;as the personal assistants&rsquo; exclusive collective bargaining representative, and pursuant to a collective bargaining agreement with Illinois, personal assistants who didn&rsquo;t join the union still had to pay a &ldquo;fair share&rdquo; of the union dues to cover collective-bargaining expenses. (This share is automatically deducted from the Medicare money that personal assistants get from the state.)</p>
<p>Harris and others challenged the fair-share provision under the First Amendment, charging that they shouldn&rsquo;t be required to pay a fee to a union they don&rsquo;t support.</p>
<p>The Supreme Court agreed, in an opinion (written by Justice Alito) that, by its terms, only applies to personal assistants. So the bare holding of the opinion is fairly narrow. But the opinion may be more important than its bare holding, to the extent that it portends a possible future overruling of <em>Abood v. Detroit Board of Education</em>, the 1977 decision that allowed compulsory dues to public-employee unions for non-political purposes. To see how the Court got to this result, it&rsquo;s important to understand a few earlier opinions.</p>
<p style="text-align: center;">*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*</p>
<p>In 1977, the Court considered a challenge to a Michigan statute allowing for union representation of local government employees. The statute permitted an &ldquo;agency shop&rdquo; arrangement: every employee represented by the union, even a non-member, had to pay the union an amount equal to union dues. D. Louis Abood, a Detroit teacher who opposed the dues, challenged the compelled-dues provision under the First Amendment.</p>
<p>The Supreme Court, in <em>Abood v. Detroit Board of Education</em>, held that the compelled-dues provision was valid. Justice Potter Stewart wrote that it didn&rsquo;t violate the First Amendment to require represented employees to pay for the unions&rsquo; expenses of collective bargaining, contract administration, and grievance adjustment. Such forced dues, the Court held, were justified by the need to prevent employees from &ldquo;free riding&rdquo; on the union&rsquo;s collective bargaining activity, which can benefit non-union members, and by the need to preserve &ldquo;labor peace&rdquo; by preventing dissension among competing unions. (In holding this, the Court spoke as if it were bound by two previous decisions, which had arisen in the private-sector union context. But, as Justice Alito wrote in <em>Harris</em>, this reasoning was shaky, since those opinions discussed the First Amendment issue barely, or not at all.)</p>
<p>But the Court also held that Abood had a valid First Amendment claim against being required to pay for the union&rsquo;s ideological and political activities. If a union pays to express political views or support political candidates or advance &ldquo;other ideological causes not germane to its duties as collective-bargaining representative,&rdquo; it must do so using money raised from non-objecting employees. &ldquo;There will, of course, be difficult problems in drawing lines between collective-bargaining activities, for which contributions may be compelled, and ideological activities unrelated to collective bargaining, for which such compulsion is prohibited&rdquo;&mdash;especially in the public sector&mdash;but those problems weren&rsquo;t presented in this case and could thus be left for another day.</p>
<p style="text-align: center;">*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*</p>
<p>A case from just two years ago illustrates how the issues in <em>Abood</em> play out. The Service Employees International Union (SEIU)&mdash;note that this is the same union involved in <em>Harris</em>&mdash;sent the California employees it represented a dues notice, specifying that 56.35% of expenditures would be for &ldquo;chargeable collective-bargaining activities.&rdquo; &ldquo;[C]hargeable,&rdquo; here, meant not subject to the opt-out right recognized in <em>Abood</em>. A nonunion employee could object within 30 days and then be required to pay only 56.35% of the dues amount.</p>
<p>Later, to participate in the political debate over California union-related voter initiatives in the 2005 election (as well as for other political purposes), SEIU billed the employees for an extra 25% increase in fees. The fees would fund an &ldquo;Emergency Temporary Assessment to Build a Political Fight-Back Fund.&rdquo; This time, there was no new opportunity to object and opt-out. Those who had filed timely objections for the main dues collection only had to pay 56.35% of the temporary increase, even though the entire increase was for political purposes; and those who hadn&rsquo;t objected to the main dues collection had no possibility of opt-out at all.</p>
<p>Dianne Knox and others represented both sets of objecting employees: those who had initially opted out but were still required to pay part of the political increase, and those who hadn&rsquo;t initially opted out but wanted to opt out of the increase. The Supreme Court, in <em>Knox v. Service Employees International Union</em>, held that a new notice and opt-out provision was required.</p>
<p>Justice Alito, writing for the Court, held that compelled speech and compelled association raised First Amendment problems, and that &ldquo;compelled funding of the speech of other private speakers or groups&rdquo; was a &ldquo;[c]losely related&rdquo; issue. &ldquo;Because a public-sector union takes many positions during collective bargaining that have powerful political and civic consequences,&rdquo; compulsory fees in this context impose a &ldquo;significant impingement on First Amendment rights,&rdquo; which past cases have &ldquo;tolerated.&rdquo; &ldquo;[W]e do not revisit today whether this Court&rsquo;s former cases have given adequate recognition to the critical First Amendment rights at stake.&rdquo;</p>
<p>The Court conceded that these fees were designed to address free riding, but noted that &ldquo;[s]uch free-rider arguments . . . are generally insufficient to overcome First Amendment objections.&rdquo; &ldquo;Acceptance of the free-rider argument as a justification for compelling nonmembers to pay a portion of union dues represents something of an anomaly&mdash;one that we have found to be justified by the interest in further &lsquo;labor peace.&rsquo; But it is an anomaly nevertheless.&rdquo; The Court also wondered out loud why opt-outs were constitutionally acceptable, any why one shouldn&rsquo;t instead demand opt-ins. This whole regime&mdash;compelled dues plus opt-outs&mdash;&ldquo;approach[es], if [it does] not cross, the limit of what the First Amendment can tolerate.&rdquo;</p>
<p>Then, having questioned the whole theory of <em>Abood</em>, the Court didn&rsquo;t strike it down. Instead, it merely refused to extend the theory to cover the opt-out-less &ldquo;emergency&rdquo; compelled payments at issue in the case.</p>
<p style="text-align: center;">*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*</p>
<p>Thus, while Knox kept <em>Abood</em> standing, its reasoning made it clear that a majority of the Court now saw its conceptual foundations as weak.</p>
<p>And the same was true here, in <em>Harris</em>. As noted above, Justice Alito&mdash;the author of <em>Knox</em>&mdash;criticized <em>Abood</em>&rsquo;s First Amendment analysis, which misread two prior decisions from the private-union context as disposing of the First Amendment issue, even though one of those decisions wasn&rsquo;t even about the First Amendment and the other disposed of the First Amendment issue hastily and with barely any reasoning.</p>
<p>Moreover, even on its own terms, <em>Abood</em> can be criticized for not giving enough weight to the important differences between private- and public-sector unions. For instance, in the private sector, collective bargaining and political activity are relatively separate activities: one is between the union and the private company in the context of private relations, while the other is between the union and the government or electorate in the context of electioneering or lobbying. &ldquo;But in the public sector, both collective-bargaining and policy advocacy and lobbying are directed at the government&rdquo;&mdash;which makes the line between the two difficult or impossible to draw in a principled way. The line, as elaborated over four Supreme Court decisions between 1984 and 2009, is so fact-intensive that objecting employees bear a heavy burden if they want to challenge particular union expenditures.</p>
<p>And finally, there&rsquo;s no necessary reason why an &ldquo;agency shop&rdquo; is necessary to the principle of exclusive union representation. The people in this case weren&rsquo;t trying to set up a rival union: they were just trying to avoid joining the existing union.</p>
<p>But the Court didn&rsquo;t overrule <em>Abood</em>. Instead, it characterized the unions&rsquo; argument here as seeking to extend <em>Abood</em> to people like personal assistants, who weren&rsquo;t really public employees (except insofar as the statute defined them as such for the sole purpose of unionization). The state has no power over personal assistants comparable to its power over its employees&mdash;virtually all power is held by the &ldquo;customers,&rdquo; i.e., the disabled persons. Aside from the collective-bargaining point, the state doesn&rsquo;t provide personal assistants most of the rights and benefits of state employees, such as retirement and other benefits, or paid vacation or sick leave. (And even the collective-bargaining point is limited: personal assistants are entitled to bargain over far fewer things than other state employees.) And the state isn&rsquo;t liable for personal assistants&rsquo; torts, as it is for its <em>real</em> employees.</p>
<p>In addition to the general shakiness of <em>Abood</em> and the differences between state employees and personal assistants, the Court noted that extending <em>Abood</em> to personal assistants would pose difficult line-drawing problems. States fund many sorts of non-employees; who would potentially be required to contribute to public-sector unions? Medicare-funded home health employees? Adult foster-care providers? In light of these difficulties, the Court chose not to extend <em>Abood</em> to this situation.</p>
<p>And, analyzing the situation under general First Amendment standards&mdash;the &ldquo;exacting First Amendment scrutiny&rdquo; that consists of judging whether the provision serves a &ldquo;compelling state interest&rdquo; that can&rsquo;t be achieved through &ldquo;significantly less restrictive means&rdquo;&mdash;it was evident that the compelled-dues provision here must fail. In this situation of home-based providers, compelled dues wouldn&rsquo;t particularly further &ldquo;labor peace.&rdquo; And, in response to the claim that unionization had improved the conditions of personal assistants, the Court responded that no showing had been made that compelled dues were responsible for that improvement.</p>
<p style="text-align: center;">*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*</p>
<p>How much does this decision harm the prospects of public-employee unions? By its bare holding, not much. All the decision does is limit <em>Abood</em> to the category of full-fledged public employees, and refuse to extend it to the personal assistant context where the state exercises virtually no control. That leaves <em>Abood</em> untouched in its core, where the vast majority of its current beneficiaries live. If the case had come down the other way, public-employee unions might now have a large set of extra compelled contributors&mdash;everyone funded by the state to do something or other, even if the state lacks any real control over them. So this is somewhat of a loss for public-employee unions. But it&rsquo;s not much of a loss of current power. One can even characterize this case as somewhat of a win for public-employee unions, given that much of the briefing was devoted to trying to convince the court to overrule <em>Abood</em> entirely.</p>
<p>The question, then, is what comes next. Justice Kagan, in her dissent, characterized <em>Abood</em> as a &ldquo;deeply entrenched&rdquo; decision, &ldquo;the foundation for not tens or hundreds, but thousands of contracts between unions and governments across the Nation&rdquo;&mdash;and called the bare survival of <em>Abood</em> in this case &ldquo;cause for satisfaction, though hardly applause.&rdquo;</p>
<p>But perhaps <em>Abood</em> survived here merely because, in light of the differences between personal employees and personal assistants, there was no need to overrule it outright. The majority&rsquo;s &ldquo;potshots&rdquo; at <em>Abood</em> (as Justice Kagan put it), as in <em>Knox</em>, suggest that, if an appropriate case comes around, with the current composition of the Court, compulsory union dues will become a thing of the past. It&rsquo;s not clear whether the Court&rsquo;s general antipathy toward compelled funding of speech is justified&mdash;we&rsquo;re forced to fund <em>government</em> speech all the time; we call it &ldquo;taxes&rdquo;&mdash;but given that basic framework, overruling <em>Abood</em> would seem to bring greater consistency to the law.</p>
<p><em>Alexander "Sasha" Volokh is an associate professor of law at Emory Law School. An archive of his previous Reason.org articles is <a href="http://reason.org/authors/show/773.html">available here</a>.</em></p>
<p>[This article was updated on July 1, 2014 to reflect that the <em>Knox v. Service Employees International Union</em> decision was authored by U.S. Supreme Court Justice Samuel Alito. The original version of the article incorrectly cited Justice Antonin Scalia as the author.]</p>1013910@http://www.reason.orgMon, 30 Jun 2014 16:16:00 EDTinfo@reason.org (Alexander Volokh)The Endangered Species Act's Hidden Agendahttp://www.reason.org/news/show/the-endangered-species-acts-hidden
<p>Usually the federal government is happy to tout its perceived successes, but that&rsquo;s not always the case with the Endangered Species Act, its most cherished environmental law. The law mandates that once a species improves sufficiently, the agency must remove it from the Act&rsquo;s protection (delist) or reduce its level of protection (downlist). Yet is took a lawsuit filed by the Pacific Legal Foundation to compel the U.S. Fish &amp; Wildlife Service to follow the 2007 recommendation of its own biologists and propose an upgrade to the status of the tidewater goby, a two-inch fish that skulks on the bottom of brackish lagoons and estuaries along the California coast.</p>
<p>The goby is only the latest of almost twenty-five species for which Pacific Legal, a Sacramento-based public interest legal organization that is generally opposed to the Act, has filed and won similar lawsuits.</p>
<p>Advocates in the federal government and pressure groups claim the Act is a stunning success and complain that opponents of the law fail to acknowledge when species have improved. So it would seem Fish &amp; Wildlife would jump at the chance to answer critics by downlisting the tidewater goby from endangered to the less-imperiled status of threatened.&nbsp; That this is not the case indicates something fishy is going on.</p>
<p>Hidden to most Americans is a larger agenda of Fish &amp; Wildlife, which is to exploit the Endangered Species Act as a powerful tool to control otherwise normal and legal forms of land and resource use&mdash;such as farming, home building and logging&mdash;across vast swaths of the U.S.</p>
<p>The bald eagle illustrates this hidden agenda. The eagle should have been delisted in the early-to-mid 1990s, when it surpassed the delisting goal of around 3,000 pairs in the lower 48 states.&nbsp; But Fish &amp; Wildlife did not want to let the eagle fly free of the Act because the bird was a powerful land-use control tool.</p>
<p>Take the case of Ed Contoski, co-owner of 18 lakeshore acres in central Minnesota. In 2004, to provide for his retirement, Contoski decided to sell his property to family members. The only option for raising the $425,000 needed to purchase Contoski&rsquo;s half-share was dividing the property&rsquo;s northern seven acres in to five residential lots and selling them. But when authorities found a bald eagle nest on Contoski's property, development halted. Faced with the ESA&rsquo;s harsh penalties&mdash;$100,000 and/or one year in jail for harming an eagle or habitat&mdash; Contoski had to abandon his plans.&nbsp; Fortunately, Pacific Legal came to his aid and successfully sued Fish &amp; Wildlife to compel the agency to delist the eagle.&nbsp; Ironically, even though Fish &amp; Wildlife fought against delisting the eagle, when delisting occurred in 2007 the agency claimed it was one of the greatest success of the Endangered Species Act.</p>
<p>The tidewater goby is a useful tool to regulate water quantity and quality in streams that empty into the ocean all along the California coast and the large amounts of land within streams&rsquo; watersheds. Conservation of the species is a worthwhile pursuit and the goby population has improved. But in the late 2000s, when Fish &amp; Wildlife should have been publishing the proposal to downlist the goby, the agency instead spent years going through the process to designate over 12,000 acres as critical habitat, a provision in the Endangered Species Act that allows for increased land-use controls.&nbsp;</p>
<p>The goby is just another in a long line of species the federal government is unwilling to delist or downlist but for the efforts of the Pacific Legal Foundation to stick up for landowners and make the government obey the law.</p>
<p><em>Brian Seasholes is director of the Endangered Species Project at Reason Foundation.</em></p>1013893@http://www.reason.orgFri, 20 Jun 2014 14:56:00 EDTinfo@reason.org (Brian Seasholes)Alabama Should Work With, Not Against, Landowners to Protect Specieshttp://www.reason.org/news/show/alabama-should-work-with-not-agains
The Montgomery Advertiser <p>Alabama got some good news when the U.S. Fish and Wildlife Service recently announced five crawfish species found in Alabama would not need to be listed as endangered species. The agency did recommend putting the slenderclaw crawfish, found in north Alabama, on the endangered list.</p>
<p>The crawfish episode is part of a federal government process that could put more than 300 species on the endangered list by 2018, including over 130 species in Alabama &mdash; more than in any other state. Since nearly all these species are aquatic, entire watersheds across the state, not just limited land parcels, may be affected by costly and burdensome regulations that could damage the economy and actually hurt conservation efforts.</p>
<p>The Endangered Species Act is a powerful law allowing the federal government to regulate otherwise normal and lawful forms of land and resource use, including farming, home building, mining, logging and dredging. Its draconian penalties &mdash; up to a $100,000 fine and/or one year in jail for harming a species or its habitat &mdash; often hurt conservation efforts by turning wildlife into economic liabilities that cause landowners to destroy habitats and remove species from their properties.</p>
<p>On federal lands, the numbers of endangered species show good improvement. However, on private lands there are nine declining species for every one improving species. This is a huge problem because 80 percent of endangered species have some, or all, of their habitat on private lands. In Alabama, which is roughly 96 percent privately owned, you simply cannot protect species without the help of landowners.</p>
<p>The state has already taken economic hits from onerous Endangered Species Act regulations, including locked-up forestland due to the red-cockaded woodpecker, stymied development along the Gulf Coast thanks to the Alabama beach mouse, and the 15-year controversy over listing the Alabama sturgeon.</p>
<p>As the latest push to list endangered species unfolds, Alabama finds itself in a situation similar to the one faced by the Pacific Northwest 20 years ago when the spotted owl and other species were listed as endangered. The battle economically devastated the timber industry and hurt the endangered species because landowners destroyed the habitats to avoid losing their land&rsquo;s value.</p>
<p>There are important steps Alabama can take now to soften the blow of these regulations while also protecting species. The state should continue to fund scientific research to ensure only species that are actually endangered make it on the list. This is how the Alabama Department of Conservation and Natural Resources and the Geological Survey of Alabama recently helped prevent the five species of crayfish from being listed as endangered.</p>
<p>Alabama should also create conservation agreements giving landowners financial incentives to preserve habitats. Providing farmers and ranchers with a revenue stream that allows them to use their land while simultaneously protecting wildlife has proven effective in other regions of the country.</p>
<p>Ultimately, Alabama and other states will need to push for federal Endangered Species Act reforms based on working with and incentivizing, not penalizing, landowners. The proposal with the best chance of gaining bipartisan support would turn the law&rsquo;s ineffective adversarial approach into a cooperative initiative modeled on the U.S. Department of Agriculture&rsquo;s Conservation Reserve Program, which pays farmers who voluntarily take marginal land out of crop production to prevent soil erosion and protect water quality.</p>
<p>When U.S. Fish and Wildlife announced its recent decision on the crawfish species, Director of the Alabama Division of Wildlife and Fisheries Charles Sykes said, &ldquo;This proactive conservation effort is keeping Alabama&rsquo;s wildlife under state management. By pooling our resources, we&rsquo;re learning more about our species, bringing efficiency to conservation, and making a difference on the landscape for the people of Alabama.&rdquo;</p>
<p>We hope the federal government sees that and is learning it can better protect wildlife and endangered species by working with, rather than against, Alabama and its property owners.</p>
<p>&nbsp;<em>Andrew P. Morriss is D. Paul Jones Jr. and Charlene A. Jones Chairholder in Law at the University of Alabama. Brian Seasholes is director of the Endangered Species Project at Reason Foundation. This article originally appeared in the <a href="http://www.montgomeryadvertiser.com/story/opinion/contributors/2014/06/01/work-states-landowners/9779635/" target="_blank">Montgomery Advertiser</a></em><em>.</em></p>1013878@http://www.reason.orgTue, 17 Jun 2014 13:55:00 EDTinfo@reason.org (Brian Seasholes)Challenging Government-Sponsored Private Regulation of Competitorshttp://www.reason.org/news/show/government-sponsored-private-regula
<p>It has been a longstanding practice in America for governments to give private entities made up of professionals in an industry the authority to regulate the profession (e.g., state bar associations regulating lawyers and state medical boards regulating doctors). This private sector self-regulation has its advantages: people in an industry know more about it than government does. When that self-regulation is non-coercive, it seems essentially unobjectionable.</p>
<p>But if the government gives private actors coercive power to regulate their own industry, that power isn&rsquo;t really <em>self</em>-regulation: it&rsquo;s really <em>some people</em> in an industry regulating <em>other people</em> in that industry. Sometimes these regulatory arrangements involve participants in an industry regulating their competitors. In other cases, existing businesses regulate, and possibly exclude, potential new entrants. When industry has a hand in regulating &ldquo;itself,&rdquo; it&rsquo;s reasonable to be concerned about the potential for self-interested bias and anti-competitive behavior.</p>
<p>Legislators and regulators need to be aware that recent state and federal court decisions show what appears to be an increasing skepticism of private regulatory delegations where such conflicts of interest may exist. Depending on the context, courts might invalidate an entire agency, prevent it from regulating in certain ways, and/or hold individual regulators liable for damages.</p>
<p>This policy brief uses two recent examples&mdash;the Mississippi Board of Pharmacy&rsquo;s regulation of pharmacy benefit managers and the North Carolina Board of Dental Examiners&rsquo; exclusion of non-dentist teeth whiteners&mdash;to explain the various legal doctrines used to challenge private regulatory delegations: state and federal nondelegation doctrines, the U.S. Constitution&rsquo;s Due Process Clause, and federal antitrust law.</p>1013846@http://www.reason.orgThu, 22 May 2014 10:00:00 EDTinfo@reason.org (Alexander Volokh)Open Letter Challenges Autodealer Rent Seeking in New Jerseyhttp://www.reason.org/blog/show/letter-challenges-nj-rentseeking
<p>University of Michigan law professor, Dan Crane and dozens of other economists have <a href="http://truthonthemarket.com/2014/03/26/over-70-economists-and-law-professors-sign-letter-opposing-anti-tesla-direct-automobile-distribution-ban/">penned a letter</a> to New Jersey Gov. Christie, imploring him to stand up against the brazen rent seeking of independent auto dealers. The letter, sent by the International Center for Law &amp; Economics, urges reconsideration of recent regulations that are preventing Tesla from selling its cars directly to consumers (instead of selling them to an independent dealer) and explains why such protectionism is unjustified:</p>
<p style="padding-left: 30px;">The Motor Vehicle Commission&rsquo;s regulation was aimed specifically at stopping one company, Tesla Motors, from directly distributing its electric cars. But the regulation would apply equally to any other innovative manufacturer trying to bring a new automobile to market, as well. There is no justification on any rational economic or public policy grounds for such a restraint of commerce. Rather, the upshot of the regulation is to reduce competition in New Jersey&rsquo;s automobile market for the benefit of its auto dealers and to the detriment of its consumers. It is protectionism for auto dealers, pure and simple.</p>
<p>Read the full letter <a href="http://www.laweconcenter.org/images/articles/tesla_letter_icle.pdf">here</a>.</p>
<p>Last week <a href="http://reason.com/blog/2014/03/20/the-government-is-a-hitman-uber-tesla-an">Reason's Nick Gillespie wrote</a> about the ridiculous Tesla regulation, as well as other anti-innovation rules being promulgated around the country to protect entrenched political interests:</p>
<p style="padding-left: 30px;">That&rsquo;s the only way to describe what&rsquo;s happening to three wildly innovative and popular products: the award-winning electric car Tesla, taxi-replacement service Uber, and hotel-alternative Airbnb. These companies are not only revolutionizing their industries via cutting-edge technology and customer-empowering distribution, they&rsquo;re running afoul of interest groups that are quick to use political muscle to maintain market share and the status quo....<br /><br />If mobsters were pulling these sorts of stunts, we&rsquo;d recognize the attacks on new ways of doing business for what they are: protection rackets.</p>
<p>For more background on the NJ regulation (which is modeled on similar laws in other states), see <a href="http://www.bloomberg.com/news/2014-03-11/tesla-stores-may-be-closed-after-n-j-blocks-direct-sales.html">Bloomberg.com</a>'s write up from earlier this month, and <a href="http://reason.com/blog/2014/03/11/new-jersey-bans-tesla-showrooms-doesnt-e">commentary</a> from Reason's Ed Krayewski.</p>1013781@http://www.reason.orgWed, 26 Mar 2014 11:36:00 EDTanthony.randazzo@reason.org (Anthony Randazzo)Bankrupt, but Not Broken: How Detroit Can Build from Bankruptcy http://www.reason.org/blog/show/bankrupt-but-not-broken-how-detroit
<p>Any day now we should have the next proposed roadmap for Detroit's bankruptcy proceeding. The plan will suggest how much Detroit thinks should be repaid to certain creditors and what cuts the city's pension funds should take. Whatever the details that emerge (and subsequently get negotiated and challenged in court), the discussion will be focused on Detroit in the short-term. But what about the future of the Motor City?<br /> <br /> In a <a href="http://www.detroitnews.com/article/20140218/OPINION01/302180002/How-Detroit-can-build-from-bankruptcy"><em>Detroit News</em> op-ed today</a>, my colleague Len Gilroy and I outline how Detroit should start thinking about its future beyond bankruptcy, and what long-term challenges lie ahead that it should make moves now to address.<br /> <br /> The <a href="http://www.detroitnews.com/article/20140218/OPINION01/302180002/How-Detroit-can-build-from-bankruptcy">first challenge</a> will be improving the delivery of city services:<br /> <span style="font: 13.0px Arial"></span></p>
<p style="padding-left: 30px;">"One step in the right direction Detroit has taken is outsourcing residential solid waste collection to save $6 million annually... Transit presents another opportunity. In recent decades, Denver&rsquo;s regional transit agency has used competitive contracting to lower costs of bus transit operations by approximately 30 percent, and Nassau County, New York, hired a private provider in 2012 to lower its costs by 24 percent. Further, Detroit should consider using &ldquo;managed competition&rdquo;: having public employees compete head-to-head against private firms to provide city services."</p>
<p>The <a href="http://www.detroitnews.com/article/20140218/OPINION01/302180002/How-Detroit-can-build-from-bankruptcy">second challenge</a> will be tax rates (and regulatory restrictions):</p>
<p style="padding-left: 30px;">"Detroit also has the highest property and income tax rates in the state. Savings from leveraging the private sector to provide city services would help it weather the short-term revenue shocks that prevent these rates from being slashed. Without tax relief, the city will have a hard time attracting businesses and individuals and reversing decades-long population decline."</p>
<p>The <a href="http://www.detroitnews.com/article/20140218/OPINION01/302180002/How-Detroit-can-build-from-bankruptcy">third challenge</a> will be pension reform:</p>
<p style="padding-left: 30px;">"Finally, Detroit has to ensure that it doesn&rsquo;t let unfunded pension benefits risk its fiscal health again. It cannot unrealistically count on receiving a 7.9 percent annual return on pension investments.Moody&rsquo;s Analytics suggests that a more honest assumption wouldbe annual returns of 4 percent. Unfortunately, lower investment returns will require more retirees to be paid out of general revenues that would otherwise fund city services."</p>
<p>Read our whole op-ed <a href="http://www.detroitnews.com/article/20140218/OPINION01/302180002/How-Detroit-can-build-from-bankruptcy">here</a>.</p>
<p>If you are in the Detroit area on Thursday, Reason is hosting a panel discussion on the the topic of this oped. Click <a href="http://reason.org/blog/show/revitalizing-detroit-after-bankrupt">here</a> for more details.</p>1013735@http://www.reason.orgTue, 18 Feb 2014 17:24:00 ESTanthony.randazzo@reason.org (Anthony Randazzo)Parks 2.0: Operating State Parks Through Public-Private Partnershipshttp://www.reason.org/news/show/parks-20-operating-state-parks-thro
Reason Foundation & Buckeye Institute <p>The ongoing fiscal challenges facing state governments are creating an existential crisis for state parks. With budgets stretched increasingly thin, state parks must compete for limited funds with other&mdash;often higher&mdash;policy priorities like education, health care, public pensions and public safety. These budget pressures have prompted policy makers in California, New York, Florida, Arizona, Georgia, Massachusetts and other states to close or significantly reduce services in hundreds of state parks, or at minimum reduce parks budgets, nationwide. In other states, like Washington and South Carolina, governors and legislatures have recently launched efforts to require parks to become self-sufficient to wean them off state appropriations, in seeming recognition that parks funding will increasingly be crowded out by other spending priorities.</p>
<p>Beyond the threat of closures, the ongoing economic malaise has exacerbated a widespread, pre-existing problem of inadequate and deferred maintenance in state parks, which only serves to accelerate their decline. A 2010 report by the National Park Service found that states had identified $18.5 billion in unfunded needs for parks and recreation. The National Trust for Historic Preservation noted in 2010 that over half the state parks systems are &ldquo;at-risk,&rdquo; which means that state-owned and -managed parks and historic sites are facing major budget cuts. For example, the California State Parks System accumulated over $1 billion in deferred repairs and maintenance; and that&rsquo;s not to mention the significant hurdles covering operational costs across the system.</p>
<p>Yet state parks remain popular while their maintenance needs continue to worsen; according to America&rsquo;s State Parks Foundation, state parks received 725 million visitors at over 6,000 sites around the country in 2010 alone.8 Can this popularity be turned from a cost into a benefit? One way to keep state parks open without imposing additional burdens on the taxpayer is to utilize public-private partnerships (PPPs). Many states already successfully use private concessionaires to provide piecemeal services within parks&mdash;including food, retail, lodging, marinas, and other commercial activities&mdash;so a shift to more extensive involvement can build on that. Such a whole park operation PPP would transfer the responsibility of maintaining the park to a private operator, while enabling that operator to raise revenue through entrance and other fees.</p>
<p>The U.S. Forest Service has used this PPP model for over 25 years to operate thousands of its developed recreation areas nationwide, and in 2012 California began the first state to turn over the operation of state parks to private recreation management companies to avoid closure. This paper seeks to describe such a model and explain how it can best be applied at the state level.</p>
<p><em>A version of this study was published by the Conservation Leadership Council in January 2013.</em></p>1013192@http://www.reason.orgTue, 10 Dec 2013 08:55:00 ESTleonard.gilroy@reason.org (Leonard Gilroy)